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.