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Friday, 20 April 2012

Vietnam places gold under state control

The State Bank of Vietnam is instituting a de facto nationalisation of Vietnam’s gold market, in an effort to restore confidence in the country’s currency – the dong. Vietnam is suffering from a growing current account deficit and record-high inflation. The government's new measures will have unpleasant side effects, as more than 2,000 Vietnamese gold traders might have to close their businesses. However, private citizens will retain the right to buy gold.

From May 25 the State Bank of Vietnam will in effect be the sole controller of gold trading in the country. Rules passed last year pushed many small gold traders out of business, and these new gold rules means that after the May 25 deadline, only companies with minimum capital of 10 billion Vietnamese dong, yearly tax payments of 500 million Vietnamese dong and with branches in a minimum of three provinces will be allowed to trade gold and import gold bars.

Currently, the only company able to comply with these requirements is the public company SJC of Hoh Chi Minh City. SJC controls 90 % of the national gold trade. According to the new regulations, major Vietnamese banks will also be allowed to trade gold. 

The State Bank of Vietnam has called on major banks to present their own plans for joining the gold trade, and regarding possible development of a national distribution grid. Experts believe that the State Bank of Vietnam is trying to use commercial banks to create its own distribution grid and thus increase its control of the gold sector.

According to government statements, these measures are necessary to stop the flight from the dong. Vietnam's current account deficit has grown in the wake of the global financial crisis, and more and more Vietnamese citizens have been buying gold in order to preserve purchasing power. Record-high inflation has encouraged the use of gold as an unofficial currency.

Trade associations predict that approximately 2,000 small and mid-sized gold traders will be forced out of business. The Saigon Jewellery Association says that many traders who are forced to transfer their businesses to commercial banks will most probably loose their only means of existence. Unsurprisingly, those with good connections to the banks may be able to survive.