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Ending the nation's love affair with gold
The Vietnamese have a long love affair with playing the gold and US dollar markets, one sign of the weak confidence people hold in the local currency and in Viet Nam's deep-seated economic imbalances.
But the constant speculation in gold and greenbacks in recent years has posed critical problems for the economy, especially in the last couple of years, sending domestic gold prices to a level VND3 million (US$142.85) higher than global price per tael (With one tael of gold equivalent to 1.2 ounces) in November last year. One US dollar on the black market sometimes ran VND3,000 higher than official exchange rates quoted by commercial banks, even after recent devaluations of the Vietnamese dong aimed at erasing this gap.
The State Bank of Viet Nam has reset the dollar-peg six times since 2008, nominally devalueing the currency by a cumulative total of over 20 per cent.
Excluding the public's purely speculative motives, one likely explanation for widespread shetering of assets in gold underscores not only a weaker currency but overall economic instability.
The currency devaluation has fed soaring inflation, which reached a two-year high in March, with consumer prices rising 13.89 per cent compared to a year earlier, according to the General Statistics Office.
In an effort to counteract this instability, the Government is trying to gradually restrict bullion trading.
"We will have a roadmap to avoid a shock to the market, but it is absolutely certain that the central bank will no longer encourage credit institutions to accept deposits in or lend gold," said State Bank of Viet Nam Governor Nguyen Van Giau.
The State Bank intends to release in April a draft decree on gold trading for public comment from commercial banks, gold traders and other stakeholders. The draft decree would aim to set up a more transparent environment for gold traders while preserving the basic rights of people with a legitimate need to trade in gold or foreign currencies, although the details of how the central bank would more strictly mange the gold market have yet to be revealed.
The State Bank of Viet Nam is only responsible for regulating the import and export of gold materials, bullion manufacturing, gold deposit and lending activities at commercial banks, and regulating gold supplies as an element of the nation's foreign reserves, noted the State Bank deputy governor Nguyen Van Binh.
Meanwhile, jewellery manufacturing and trading, as well as bullion trading on the open market are regulated by local departments of planning and investment, while control of the gold market is under the auspices of the MinistryMinistry of Finance, and gold quality and purity standards are set by the Ministry of Science and Technology, Binh said. of Industry and Trade, gold exports are regulated by the
In practice, he added, the gold prices set by Sai Gon Jewellery Company (SJC) have all the earmarks of a second currency in Viet Nam, as a unit of accounting, a store of value, and a medium of exchange, with free circulation and conversion. SJC bullion also accounts for 80 per cent of total market share in Viet Nam and is globally accepted.
With over 10,000 traders in gold nationwide, it's a wild, wild west on the gold market, which operates without a clearly defined legal framework. Therefore, the State Bank has assumed that it should be treated as a special commodity to be closely regulated by the central bank, he said.
The nation lacks any official statistics regarding the total amount of gold hoarded by the public, but market data suggest that an enormous supply is currently being held in private hands as a form of savings.
According to the General Department of Customs and the State Bank, between 1998 and September 2010, the country imported nearly 339.9 tonnes of gold and exported 268.86 tonnes. For a while in 2008, as Viet Nam's inflation rate spike to an annual pace of 23 per cent, Viet Nam became the world's largest importer of gold.
Viet Nam Gold Traders Association chairman Dinh Nho Bang said that, although the country has seen rapid economic growth, the public still sees the gains as fragile. "If the economy were stable," Bang said, "people would love the domestic currency more."
Ha Phuong
vietnamnews
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