The State Bank of Vietnam has banned local banks from converting gold deposits into dong to make loans as the government tightens control over the currency market.
According to a statement on the central bank's website on Friday, financial institutions are also banned from offering gold loans for the production and trading of gold bars. They are only allowed to lend gold to jewelry makers and traders.
The central bank said banks are permitted to set their interest rates on gold loans and deposits based on market demand and client creditworthiness.
It's necessary to revise regulations towards restricting gold borrowing and lending, Nguyen Ngoc Bao, head of the central bank's Monetary Policy Department, said in an interview published on the government website on Friday.
Expanded gold deposits and loans increased dollarization and speculation in the economy and had negative impacts on the market and foreign exchange rates, he said.
The new rules will help transfer a part of existing gold reserves on the market into cash, which will then flow into the business sector, Bao said.