Crackdown on gold trading likely

The State Bank of Viet Nam is expected to issue regulations this week to tighten controls on gold transactions and ease the pressure that rising gold prices have placed on the foreign exchange market.

The spike in gold prices is believed to have contributed to the overheating of the US dollar on the black market in recent weeks.

The State Bank is reportedly considering forbidding commercial banks from converting their gold deposits into dong for loans and narrowing the ability of banks to lend gold or accept gold deposits. A source from the central bank has revealed that the State Bank has already received approval from the Prime Minister to issue the regulation this week.

The regulation would strike at a major profit centre for commercial banks, which pay interest of just 1 per cent on gold deposits while charging interest of up to 12 per cent on cash loans. Some estimates say gold trading accounts for up to half of some banks' profits, although it poses huge risks to the banking system due to the fluctuations in gold prices.

About 90 tonnes of gold, worth nearly US$4 billion, is currently deposited at commercial banks, according to State Bank figures. If the central bank were to limit the banks' ability to profit from these deposits, a large volume of gold is likely to be unleashed to the market, helping lower prices while easing pressures on the foreign exchange market. Domestic gold prices are now VND600,000 (US$30) higher than global prices.

Some market watchers believe that gold dealers have been accumulating dollars to smuggle additional gold onto the domestic market, contributing to current dollar shortages and spikes in black market forex rates. The US dollar was trading on the street yesterday at VND20,160-20,180, up an additional VND40 over last Saturday. The central bank has announced that it plans to inject additional dollars into the commercial banking system to meet the growing demand of importers in the closing months of the year, and to further cool down the forex market.

vietnamnews

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