Not just a virtue of necessity

The domestic gold and foreign currency market has been kept stable in recent times even though the global gold price remains high.

Developments in the domestic gold and foreign currency market over the past week have captured special attention of people and businesses. Particularly, stopping the transaction of foreign currencies in the free market and the falling price of gold bars have forced domestic gold prices down remarkably compared to those in the global market. These positive signs can be attributed to the move launched by the Ministry of Public Security and the State Bank of Vietnam (SBV) to strictly control the domestic market under the Government’s Resolution 11.

Stopping transactions in dollars

As a result, many people and foreign currency businesses are in the dark about the real trading price of the dollar in the free market ever since.

Ha Trung, widely known in Hanoi as a street for foreign currency exchange, stopped transactions last week but there were still sporadic transactions in HCM City with one dollar being bought at around VND21,500 and sold at US$21,600.

In the mean time, the selling price set by the Foreign Trade Bank of Vietnam (Vietncombank) hovered between VND20,875 and VND20,880 per dollar.

No wonder, those investors and people who are used to trading in foreign currency have run into trouble.

“It is essential to reconsider this matter as many people find it difficult to sell foreign currencies,” an investor complained.

At a recent conference on the implemention of the Government’s Resolution 11, the SBV Governor said the SBV will have a scenario to tighten the management of foreign currency transactions in Hanoi, HCM City and border areas.

To strictly control illegal transactions, the police sector has recently detected a case of violation worth more than US$400,000.

There is no denying that tougher administrative measures have proved more effective in stabilising the gold and foreign currency market and putting transaction activities in place. However, such measures must be taken on a regular and constant basis to prevent under-the-counter transactions.

The General Secretary of the Vietnam Association of Financial Investors (VAFI), Nguyen Hoang Hai said the crux of the matter is how to meet people’s needs for foreign currencies to pay for overseas studies or medical treatment and so on and so forth. In addition, it is very important to make everyone become more confident in the Vietnam Dong.

Without a mechanism that makes people feel secure and safe about keeping their assets in the domestic currency, they will seek to do under-the-counter transactions in one way or another, Mr Hai argued.

Gold rings instead of gold bars

For two weeks, the domestic gold price continued hovering around VND37.7 million per tael. Now, it has decreased by VND650,000 to VND37 million per tael.

Last weekend, the number of people buying gold bars dropped significantly but those buying gold rings increased considerably, according to some jewelry shops in Hanoi.

Many said they had decided to buy gold rings due to rumours that the trading of gold bars would be banned soon.

At the moment, gold rings are sold at the same price as gold bars so at times they are not enough available for sale.

According to jewelry businesses, a ban on trading gold bars in the free market has made many people reluctant to sell or buy gold, leading to a decline in the domestic price to the same level as the world price.

The upside is that the domestic price will track the world price to make it possible to control and prevent the drain of foreign currencies and price hikes in the gold market like in November 2009 or November 2010 when the domestic price was VND3.6 million per tael, even higher than the world one.

Not just for efficiency gains

How to mobilise gold bars from the free market when transactions are banned is a challenging question since not all citizens like to sell them to banks.

Nguyen Hoang Hai said it would be fair and reasonable not to ban trading gold bars in the free market and keeping individual assets in gold. Once people need money they can sell gold to State Banks at the world price. This is the State Bank’s suggestion to ensure their benefits. However, to make it feasible, the State should devise regulations on trading gold jewelry in order to prevent shifts from gold bar to gold jewelry trading or from gold to foreign currency trading.

In many countries, idle money will be deposited at banks or invested in securities, instead of buying foreign currencies, gold and real estate and such a steady flow of capital into the bank will make the national economy ever stronger.

In his opinion, as idle money is not controlled tightly people like to buy gold, foreign currencies or real estate. Vietnam should learn experience from other countries to adapt itself.

Managing foreign currency and gold bar trading in the free market needs a roadmap with comprehensive measures.

Hai emphasised that the State should consider ensuring depositors’ benefits in the face of runaway inflation and fluctuations in the rate of exchange. When the Vietnam Dong is unstable citizens tend to think about the devaluation of their currency and property assets and will look for a way around the law. – VOV

Tags: Vietnam forex market