Vietnam likely faces goldization

Vietnam exposes to not only dollarization but also serious “goldization” as Vietnam’s gold reserve in 2009 is equivalent to 50% of Vietnam’s GDP at that time while those at the four biggest gold consumers in the world range from 1.8% to 2% GDP.

Vietnam exposes to not only dollarization but also serious “goldization” as Vietnam’s gold reserve in 2009 is equivalent to 50% of Vietnam’s GDP at that time while those at the four biggest gold consumers in the world range from 1.8% to 2% GDP.

This may have negative impact on the monetary policy’s effectiveness and stability of domestic macroeconomics in the medium term, said Le Xuan Nghia, Vice Chairman of Vietnam Financial National Supervisory Comission, pointing out that the public’s gold hoarding makes local banks find it harder to raise funds as the public tend to prefer hoard gold for savings rather than deposit to local lenders.

Gold hoarding also contributes to the $12.8billion difference between current account and capital account and a shrink in the national forex market in 2009.

Specialists calculated that money multiplier is about 4.8 if excluding gold from money supply (M2), while this multiplier is only 2 if including gold to M2.

Nghia suggested that the SBV had better study carefully gold market management, gold circulation in the economy and dollarization for drastic policies as measures such as giving local firms quota to import gold or restrict gold investing and trading activities are inadequate to control the economy.

Gold should be treated as a foreign currency, a source of capital for the economy, Nghia said, adding that measures of restricting or banning gold trading and investing activities may hardly help to stabilize the forex market and may encourage illegal gold transactions, especially amid world gold volatility.

Statistics of World Gold Council showed that Vietnam’s gold reserve have mounted in many years and hit the highest of 1,000 tons ($45billion) in 2009, bringing Vietnam the fifth largest gold consumers in the world, therefore big volatility of Vietnam gold prices could have certain impacts on the global ones. – Stoxplus.com

Tags: goldization, vietnam gold, Vietnam gold market, Vietnam gold prices