The State Bank of Vietnam is planning to eliminate gold bullion trading in the unofficial market in a move to reduce speculation, reduce inflation, and tackle the trade deficit.
The central bank has proposed that the government ban gold bullion trading at gold shops, said State Bank Governor Nguyen Van Giau.
The central bank would designate official outlets where people could sell and buy gold bars. It will either import the gold bullion by itself and sell them to gold traders, or allow just a few traders to import it and resell in the domestic market.
Many Vietnamese people have the habit of keeping their savings in gold and using it as a means of payment for large transactions like buying property. This has affected the foreign currency market and caused speculation in the precious metal.
"Gold bullion is an important asset, so it should be put into production and business to serve economic development," Giau said.
Vietnam was the world's biggest importer of gold in 2008, when the country's annual inflation reached 23 percent, according to the World Bank.
Economists said the abolishment of unofficial gold trading is one of measures that government can take to ensure macroeconomic development in the context of high inflation. Inflation quickened to a two-year high in February. Prices rose 12.31 percent from a year earlier, compared with 12.17 percent in January, according to the General Statistics Office. That was the highest increase since February 2009.
Former central bank governor Cao Sy Kiem agreed with the new move. "The proposal is right. If the government does not strictly control the gold bullion trade, it will distort monetary policy, and make the financial and monetary markets chaotic. "
"Trading in gold bullion will make the trade deficit larger because the country has to import gold," Kiem said.
Do Minh Phu, chairman of the management board of gold firm DOJI, and vice chairman of the Vietnam Gold Business
Association, said: "The control over gold bullion trade in the unofficial market now is necessary, as it is not only a product, but also a means of payment and an investment channel that can strongly affect the economy."
Furthermore, Vietnam does not have a full legal corridor for controlling trade in gold bullion in the free market, although the country has more than 10,000 traders, all of whom deal in gold bars, he said.
Phu said a ban on gold bullion trading is impossible to implement. The Vietnamese habit of saving in gold and its prominent part in local consumption culture has seen holdings of the precious metal rise to between 300 and 400 tons, he said.
"Trading of gold bullion is seen in Vietnam but not in other countries," he said. Many people use gold as an investment channel, and prices have risen sharply over the past 10 years, so it is also a legitimate demand, he added.
Kiem said it was necessary to build a detailed roadmap and strictly manage its implementation to prevent illegal trade of the precious metal in the black market.
Tran Hoang Ngan, a member of the National Monetary and Financial Policy Advisory Council, said: "The elimination of gold bullion trading in the unofficial market is a long-term target. However, its effectiveness depends on gold prices in the world market. If the prices continue to stand as high as they are now, people will still keep saving in gold." Gold prices have risen to to US$1,400 per ounce now from US$400 in 2005, he said.
To effectively control the gold market, the government should take measures to restore public confidence, curb inflation, stabilize exchange rates, and reduce gold smuggling, Ngan said.
Phu said the government should ensure that gold bullion holders would not suffer losses if they sell to official traders after the new decree is issued.
"After the central bank's announcement, some customers have called us to ask whether trade in bullion is banned or not, and whether their savings in gold are affected," Phu said.
Nguyen Minh Hai, vice director of Property and Finance Investment under the Bao Tin Minh Chau gold trading firm, said the number of gold sellers at the firm's shops had increased remarkably in recent days, following the ban proposal.