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Decree may lead to gold trading monopoly
The public is concerned that the State Bank of Viet Nam (SBV)'s draft decree on gold bullion trading could lead to monopolistic practices since few companies would be able to meet the requirements.
Under the decree, businesses seeking gold-production licences would have to have legal capital of at least VND500 billion (US$23.8 million), and sufficient facilities and equipment for production. They would also be required to have a 25 per cent market share for three consecutive years.
The draft decree also requires institutions and individuals trading gold bars to get a licence and follow the regulations related to capital, revenues and network.
Traders must have prescribed capital of at least VND100 billion ($4,800) and two years' experience in gold trading. They must also have paid taxes of more than VND500 million ($24,000) a year for two years.
The central bank hopes the stricter requirements would help ease speculative and manipulative activities in the local bullion market by reducing the number of gold traders and manufacturers in the country, which now stands at 12,000 and eight, respectirely.
However, many independent market watchdogs and gold firms disagree with the SBV's new rules, saying that only the Sai Gon Jewelry Company Ltd (SJC) could meet the requirements.
Of all the conditions for a firm to produce gold bars mentioned in the SBV draft, the most important one is to have a 25 per cent market share for three consecutive years.
The SJC is the only company that satisfies this criterion because the company currently holds a 90 per cent market share in gold-bullion production.
Critics also said that the required chartered capital of VND500 billion was too high for most local gold traders.
They noted that the decree would be unfair to other gold producers, and the latter would accrue big losses if the decree was approved.
Gold-bullion manufacturers have invested heavily in technology to produce gold bars and spent a lot of money building their brandnames.
The new policy could also lead to more red tape and time-consuming procedures, they said.
Companies with raw material gold import quotas would be forced to send orders to the central bank and even to the SJC to get approval every time they wanted gold bars to sell.
According to gold experts, management of the gold market is necessary, but appropriate measures that meet the market's consensus must be considered.
Vu Minh Chau, director of the Bao Tin Minh Chau Jewelry Company Ltd, said only two companies could meet the new draft decree requirements to make gold bullion, while only a handful of firms would be eligible for trading gold.
Tightening gold manufacturing and trading is the right thing to do, but stringent requirements would lead to a monopoly since only a few firms could satisfy the demand, according to Chau.
Many market analysts fear that a return to a gold monopoly would damage consumer interest in gold brands sold at different prices.
One expert, who did not want to be named, said the SBV aimed to directly manage gold production and trading activities. It wants to intervene in the daily trading prices of the SJC in order to stabilise the market.
Under the plan, the SJC would produce gold bars to meet market demand after the SBV receives orders from traders. Such a model has been applied in many countries.
Market analysts, however, are concerned that there would be a shortage of gold bullion if the SJC refuses orders from the SBV (as the firm is not an SBV subsidiary), or fails to meet market demand. A disruption in supply could cause a major price hike.
They are also worried that if the current 10,000-plus gold shops are required to cease operations, they might begin operating illegally to meet demand.
Firms which are not allowed to manufacture gold bars could focus on producing gold jewelry to meet demand, and thus the domestic raw material gold source would be used to produce jewelry, not gold bullion.
This is contrary to the SBV's intention. It wants people to buy gold bars and then deposit them in banks. The banks are not allowed to receive jewelry as deposits.
Phi Dang Minh, former director of the Foreign Currency Management Department, however, said reducing the number of gold manufacturers was necessary because the draft would not only help the Government control gold quality but also curb gold speculation, and keep the economy from being driven by gold.
vietnamnet
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