The State Bank of Vietnam (SBV) has reconfirmed that its recent decree on gold management policies help the local gold market operate in a more sustainable manner than before.
Decree No.24, which enables the central bank to intervene in the local gold market, has helped stabilize the gold market by increasing gold supply in compliance with a resolution of the National Assembly on stabilizing the gold market, said SBV on its website.
It has also helped SBV follow the government’s directive on making gold less attractive as a means of payment and a speculative asset in the local economy.
The state agency has acknowledged that it has had to extract money from the national foreign currency reserves to import raw gold for local gold production to increase the supply to the market through bidding.
However, to implement the above measures, the central bank has got the green light from the government. Accordingly, the recent intervention of the central bank to stabilize the gold market is entirely consistent with the functions and tasks of the central bank, it said.
In addition, the amount of foreign currencies the central bank spent on importing gold is many times smaller than that of the previous year, and accounted for only a small proportion of the amount of foreign currencies recently purchased by SBV to increase the state's foreign exchange reserves.
“In the past, each year the country had to spend some US$4.4 billion worth of foreign currencies, mostly the greenback, to import about 100 tons of gold bars,” the central bank said.
The current foreign exchange reserves are at the highest level ever, equivalent to the international norm -- enough to cover 12 weeks of imports, it said.
The central bank’s monopoly on gold imports, as stipulated in Decree 24, has helped stabilize the exchange rate, control inflation to ensure the supply and demand of foreign currencies and the macroeconomic stability.
Since the promulgation of Decree 24, gold is no longer a means of payment and the demand for gold investment in Vietnam has decreased markedly.
Sell like hot cakes
Local commercial banks have so far bought more than 13.7 tons out of 15.22 tons of gold bullions offered by SBV via 13 bidding sessions to repay to gold depositors. They bought some 100 tons of gold bullions last year for the same purpose.
With such a huge demand from the local banks, the price gap between local and international gold bullion is inevitable, said the central bank.
According to the central bank, the amount of gold needed to be bought until June 30, 2013 would be around 20 tons.
The gold bullion purchase is aimed at making up for the volume of gold that local banks received from depositors in the past years, but had sold for the Vietnam dong for lending right after that.
The central bank in October ordered those local lenders to stop taking gold deposits from customers starting June 30.
The bank needs to control the gold market to maintain the value of the dong -- the country’s currency -- over the US dollar, governor Nguyen Van Binh said in a recent interview.
Previously, before the central bank was empowered by the government to be the country’s sole gold refiner/trader with the monopoly brand of Saigon Jewelry Co (SJC) at the end of last year, all the market participants could trade gold bullion freely with no restriction.
As a result, many market participants used to hoard the dollar for gold imports/smuggling, especially when the international price fluctuated, thus causing temporary shortage in dollar supply in the market, and damaging the value of the dong as a side effect.