Vietnam - Vietnam brainstorms on turning 500 tons of gold into resources

What will the Government do in order to awake the 500 tons of gold worth more than 20 billion dollars, now lying among people, and turn the gold into a national resource?

The solution of the State mobilizing capital in gold from the public through credit institutions has been approved by the government in principle. Dr Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, said that mobilizing gold from the public will help increase the State’s gold reserves, capitalize the huge sum of gold and bring the capital to serve the production and business.

Also according to Nghia, the capitalization can be done through different ways. The State Bank of Vietnam can authorize some commercial banks to mobilize capital and issue gold certificates to depositors. If necessary, the State Bank will purchase the gold to put into the bank’s gold reserves.

It is estimated that 80 percent of gold buyers make deposits at banks. Therefore, if issuing gold certificates, people do not have to bring bullion gold home, while they just need to keep gold certificates. As such, the volume of bullion gold put into transactions in the market would decrease to 20-30 percent of the current level.

Especially, people can use the gold certificates as collateral for borrowing money or transfer the certificates, while no need to use in-kind gold, which proves to be safer than using real estate as the mortgaged assets for loans.

“This should be seen as one of the very important solutions to create a financial tool for the finance market in particular and the national economy in general,” Nghia said.

Experts say that after mobilizing gold from the public, the State Bank can use the gold to stabilize the market or use the gold as the mortgaged assets, for borrowing money from foreign sources to serve the development of the national economy.

Meanwhile, Nguyen Thanh Truc, Deputy Chair of the Vietnam Gold Business Association, Chair of Agribank Jewelry Company (SJC) thinks that first of all, the government should encourage commercial banks to attract deposits in gold at low interest rates, and then use the capital in gold in some ways as follows.

First, after mobilizing capital in gold, if commercial banks do not want to lend in gold for fear about risks, they may deposit the gold at foreign prestigious banks, such as UBS, MKS, or HSBC. They can also use the gold as the mortgaged asset to borrow big loans in foreign currencies at the low interest rates of 2.5-3.5 percent per annum. The foreign loans then can be re-lent to Vietnamese enterprises to expand their business and production.

Second, commercial banks can export the gold they mobilize from the public in order to earn dollars to invest in the Vietnamese economy. Right after exporting certain volumes of gold, commercial banks would purchase the same volumes of gold on account from foreign prestigious banks at the same prices.

In doing this, commercial banks only have to make a deposit worth 7 percent of the total values, while they can avoid the risks from the gold price fluctuations. The banks can use the foreign currencies earned from gold exports to lend to Vietnamese enterprises. When banks need gold to pay back to gold depositors, they will pay the remaining 93 percent of the gold value to the foreign banks to import in-kind gold to Vietnam.

However, in order to implement the plan, experts say, the State Bank will has to allow commercial banks and some big gold companies to trade gold on account, because these are the derivatives which help banks balance the gold position to prevent risks. With the gold trade on account, enterprises will be able to save foreign currencies, because they just need to make deposit at 7 percent of the total value.

Urging the government to consider the suggested solutions, experts say that these are the very important tools to narrow the gaps between the domestic and the international prices, thus helping avoid price shocks on the domestic market. If so, there would be no more opportunities for speculation.

Source: VNN

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