Vietnam’s new war on gold
August 3, 2012 Leave a comment
These restrictions included banning gold as a medium of exchange and issuing 7 ‘solutions’ which were designed to reduce ‘goldization’ the practice of replacing the dong with gold in transactions.
As many readers already know, Vietnam has a huge affinity with gold. So much so that house prices are priced in both dong and gold. According to Ronald Stoerferle’s ‘In Gold We Trust’ 2012 report, ‘Overall gold demand amounts to roughly 3.1%of GDP’ Stoerferle also notes that by comparison it is less than 0.5% in China.
These moves by the government aren’t so much to change the behaviour of citizens but also their psyche. Further measures have been put into place in the last month in order to reduce the dependency on gold.
Ban on gold mobilisation and gold lending
To ‘prevent gold speculation’ the State Bank of Vietnam (SBV) has issued a directive ordering credit institutions to halt gold mobilisation and lending in gold from November 25 2012.
Gold speculation is popular in the country, namely in Ho Chi Minh which accounts for nearly 76% of the national total. Banks mobilise capital in the public’s gold to sell for Dong in order to settle liquidity problems.
Prior to July, commercial banks reportedly rushed to raise gold deposit interest rates in an effort to improve their liquidity – they used mobilized gold in order to borrow on the interbank market. However, according to reports, it is now easier to do this without mobilizing gold as bank liquidity has been improved. Therefore banks no longer have to mobilize gold.
In line with the directive, credit institutions will only issue short-term gold certificates, for those depositing physical gold bullion, to pay customers upon request, these will terminate on the 25 November.