Get hoarded gold to serve economy, experts urge 

Published: 01/05/2011 05:00

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Gold is a popular means of savings in Vietnam. Experts say the government needs to attract and use billions of dollars worth of gold owned by the public.

As the government plans to tighten the gold screws further by banning lending as well as acceptance of deposits, experts say private holdings of the precious metal should be put to productive use.

The State Bank of Vietnam announced last week that commercial banks will be forbidden to lend gold starting May, and new regulations on accepting gold deposits will come into place in the next two years.

Gold loans for production and trading of gold bars were banned last October. Starting May 1, banks will not be allowed to loan gold even to jewelry makers.

A central bank official told Thanh Nien that the new rule is an attempt to eliminate the role of gold as a means of payment in Vietnam and make the dong stronger. Along with the ban, a series of policies will be announced to manage the gold market better and protect citizen rights, he said.

The central bank had previously said the government would continue to recognize the right of people to keep gold.

Economist Nguyen Duc Do of the Institute of Economics and Finance said the anticipated ban on gold lending and borrowing was aimed at driving the public toward the dong. This policy, however, may not work since many people still favor gold as a means of savings, he said.

When the metal no longer stays inside the banking system, it would be even harder for the central bank to supervise gold transactions, Do said. The ban on gold and foreign currency credit can lead to more people taking out dong loans, putting an upward pressure on already high interest rates, he added.

Market lending rates in Vietnam are as high as 22 percent a year, according to the latest weekly report by the State Bank of Vietnam.

Phi Dang Minh of the Vietnam Banks Association estimated that Vietnam has imported more than 600 tons of gold since 1988 while exporting only around 200 tons. That leaves some 400 tons of gold with the public, worth US$12 billion.

Minh said this huge asset needs to be put into use. “It would be a waste if there is no measure to attract gold after the ban,” he said.

Economist Vu Dinh Anh said up to 45 percent of individual savings are in gold. The government can issue bonds to attract these savings and then sell the gold to both local and international buyers, he suggested. “Local companies would be able to buy gold from the government instead of having to import it.”

An analyst who wished to be unnamed said with inflation emerging as a serious problem, gold prices have continued to surge. Many people in Vietnam consider gold a safe haven and do not care about how much interest they will receive from banks.

Even if banks stop receiving gold deposits, it’s unlikely that those holding gold will sell their assets. People may even accept paying a fee to have banks keep their gold, the analyst said.

Banks in Vietnam have set interest rates on gold deposits at a mere 0.3 percent or thereabouts, according to the Vietnam News Agency. The interest rate cap on dong savings is now 14 percent.

Gold prices have risen by more than 40 percent in Vietnam over the past year. On the world market, gold hit a record high of almost $1,530 an ounce on Wednesday.

Experts said when Vietnamese citizens are no longer allowed to deposit gold in banks and restrictions are placed on gold trading, they would need another option to invest the gold.

Nguyen Thanh Long, general director of Vietnam’s largest gold trader SJC, said an official gold exchange should be set up where investors are required to deposit their gold before they can start trading.

An official trading floor will help attract the gold formerly deposited in banks, and at the same time discourage illegal trading activities, he said.

Vietnam shut down about 20 gold trading houses run by banks and financial firms a year ago on concerns that the heavily leveraged operations were too risky for the financial market. Many illegal floors have since popped up, tapping into demand of gold investors.

Reported by Anh Vu - Thanh Xuan

Provide by Vietnam Travel

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