Economist urges Vietnam to mortgage gold for foreign currency

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A prominent financier recently suggested that Vietnam could resolve its foreign cash crunch by tapping its massive stores of privately-held gold.

On August 21, local media quoted Truong Van Phuoc, general director of Ho Chi Minh City-based lender Eximbank, as saying that the country's privately-held gold (officially estimated at between 300-500 tons) could help the nation get through its current capital shortage .

The plan hinges on private gold holders depositing their gold at commercial banks for 0.4 percent interest.

Then, the central bank could issue bonds to commercial banks in exchange for the gold at 0.5 percent interest. After that, the government could deposit the gold into foreign banks with an interest rate of 1 percent, Phuoc explained.

Put simply, he said, the gold could be mortgaged to foreign banks for foreign currency.

At 1 percent, the nation's gold could yield interest of roughly US$15-25 billion, adding a great deal to the national budget, he said.

In early May, the central bank officially banned bullion deposit at credit institutions since it is hard to generate interest from bullion, economist Huynh Buu Son said. But if gold is mortgaged to foreign banks, depositors and the economy as a whole would benefit.

Other international banks have found success in mortgaging gold for foreign currency. Vietnam should do so to collect large amounts of foreign currency, said economist Phan Dung Khanh.

The central bank could totally control the gold market by launching such a plan, general director of Vietnam Gold Business (VGB) Tran Thanh Hai said. 

However, Hai also expressed concerns about how the large amount of foreign currency would be used, warning that a mass influx of foreign money might depreciate the value of the Dong.

Furthermore, he added, the plan would require the central bank to maintain sizeable gold reserves to cover early withdrawals.

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