Dated policies on gold necessitate modernisation

Import of gold could help diversify the market in Vietnam, photo Le Toan

Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, said at last week’s meeting of the council headed by Deputy Prime Minister Le Minh Khai in Hanoi that Decree No.24/2012/ND-CP from 2012, which aimed at curtailing the “goldisation” of the economy, has essentially fulfilled its mission. The term can refer to holding gold reserves to act as a hedge against inflation.

“Given the current context, the regulations set by Decree 24 are no longer necessary and may adversely affect other macroeconomic factors. The high gold prices and significant discrepancies with global rates could spur unorthodox gold import activities, thereby straining the exchange rate locally,” Luc said.

“SJC gold bars, in reality, are no different from other gold brands, yet the price differential has reached $400-500 per tael recently. This has created an artificial value for businesses and the economy, leading to smuggling due to the price discrepancies in gold.”

Therefore, he suggested that abolishing the gold monopoly is a necessary step to reduce domestic gold prices, thereby minimising gold smuggling, increasing foreign currency in the economy, possibly boosting foreign reserves, and stabilising the exchange rate.

Financial expert Le Xuan Nghia recalled that the economy a decade ago was “goldised” because commercial banks were allowed to accept deposits and provide loans in gold. “The monopoly on gold should be abolished, since the context that created it no longer exists. There will permanently be no more inflation-hedging of gold, as it is not accepted as a deposit in the banking system.”

On the other hand, Nghia noted that when the domestic gold price is significantly higher than the global price, it leads to gold smuggling for profit margins.

“When the price difference is low, the incentive for smuggling vanishes,” he said. “According to the World Gold Council, approximately 50 tonnes of gold is smuggled annually, equivalent to $3 billion. This is utterly unacceptable.”

He believed allowing businesses to independently import gold would necessitate purchasing USD through the banking system and opening letters of credit for official gold imports. This would eliminate the practice of buying USD on the free market for smuggling purposes, relieving pressure on the exchange rate. Businesses could also add value through the export of gold jewellery, thereby increasing foreign currency earnings, a practice Vietnam encourages.

He also emphasised that no country in the world now has a central bank monopolising gold bar business. Instead, central banks hold gold reserves as national reserves alongside USD to diversify risk. China, Russia, and India continue to buy gold for their reserves annually.

Meanwhile, Huynh Trung Khanh, vice chairman of the Vietnam Gold Business Association, revealed that the association has proposed to the regulatory authorities that three key businesses - PNJ, SJC, and DOJI - be granted permission to import 1.5 tonnes of gold annually, equating to each company importing 500kg per year.

“Our recommendation focuses on allowing the importation of raw gold, primarily for the crafting of jewellery. The three nominated companies represent the pinnacle of gold trading within the sector. We’re advocating for a pilot initiative tailored to these entities, rather than a broad application,” Khanh said.

He further explained that the importation process would not involve a single transaction of 1.5 tonnes, but would instead be staggered across multiple occasions, subject to the discretion of the State Bank of Vietnam. “It is not a large amount, considering the domestic demand for gold jewellery stands at approximately 20 tonnes,” Khanh added. “Translating into monetary value, we’re looking at just over $30 million for 500kg. The aggregate value of importing 1.5 tonnes of gold, encompassing import costs and taxes, amounts to around $100 million.”

Khanh also expressed confidence that importing gold would diversify the market. “This will undoubtedly lead to a decrease in domestic gold prices, effectively reducing the gap between international and domestic rates. The public stands to gain from this, and it promises a more stable gold market,” he said.

Elsewhere, financial expert Nghia proposed abolishing the monopoly on gold supply, allowing qualified businesses to import gold, returning the SJC brand to Saigon Jewellery Company, and removing gold management quotas in favour of tax management. The central bank could still maintain gold reserves and intervene when necessary.

“The state could encourage imports by reducing taxes and vice versa it can earns tax revenue and remains in control,” he said. “Abolishing the SJC gold bar monopoly is expected to increase supply, lower gold prices to closer align with the global market, and, by returning the SJC brand to Saigon Jewellery Company, reduce the domestic price of SJC gold bars to similar levels as standard 9999 gold or slightly higher due to branding.”

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