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What will happen when banks stop mobilizing gold?
The State Bank of Vietnam has stated that commercial banks will have to “make a break with gold” from November 25, but it has not said about how to deal with the 400 tons of gold people now keep under their pillow, which experts believe is a huge capital for the national economy.
Gold may help recover economy
Nguyen The Hung, General Director of the Vietnam Gold Investment and Business Company, cited the statistics of Swiss banks – the main gold supply sources for Vietnamese market – as saying that Vietnam imported 500 tons of gold in 1990-2011 (5 tons a month at minimum and 80 tons at maximum).
During that time, Vietnam exported one ton of bullion gold to Switzerland a year on average, while the export volume sometime reached 20 tons in 2007-2009. Meanwhile, some 100 tons of gold have been deposited at Vietnamese banks.
As such, 400 tons of gold is still being kept among people. With the current gold price of 1700 dollar per ounce, the 400 tons of gold is worth 22 billion dollars, a huge sum of money, which is approximate the current foreign currency reserves.
Hung said if just a half of the 400 tons of gold can be mobilized from the public, Vietnam would have 10 billion dollars worth of capital to be pumped into the national economy, which would help revive production and develop.
However, the State Bank still keeps quiet about what it will do to mobilize gold the market. Meanwhile, commercial banks would stop accepting gold deposits from November 25, 2012.
Dr Tran Du Lich, a well-known economist, emphad that no matter how the State Bank tightens the control over the gold market, it should lay out policies in the way that fits the Vietnamese habit of hoarding up bullion gold to protect their assets.
He went on to say that it is necessary to put gold into circulation to turn gold into the capital for the national economy, instead of leaving gold in people’s coffers as “dead capital.”
Gold certificate issuance proposed
Hung thinks that the best way to mobilize gold from the State is that State Bank comes forward and issue gold certificates. In this case, commercial banks can act as the agents for the central bank in issuing gold certificates and get commissions from the work.
Nguyen Thanh Long, Chair of the Vietnam Gold Business Association, agrees that it would be better to issue gold certificates. The State Bank can come forward and issue long term gold certificates to collect gold from the public. The volume of gold to be mobilized can be mortgaged at foreign banks or finance institutions for foreign currency loans which would be funneled into the socio-economic development projects.
“If Vietnam goes that way, it would be able to take full advantage of the huge capital source from the public, while ensuring the right of people to possess gold,” Long said.
However, Long himself admitted that it would be not easy to apply the method. And in case the State Bank successfully mobilizes gold from the public, it would have to think about how to use the capital in the most effective way.
Huynh Buu Son, a well known economist, also keeps doubtful about the feasibility of the project. The State Bank is a state management agency, and no one can say for sure that it would be able to use the huge capital more effectively than people or commercial banks.
He went on to say that the central bank, as the watchdog agency, should not intervene in the gold market or get involved in the gold mobilization
vietnamnet
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