Central bank scheme to attract gold deposits a tough sell
An employee counts some gold bars before he sells them to a customer at a gold shop in Hanoi
The State Bank of Vietnam wants to encourage residents to bank their gold instead of hoarding it at home, but this is easier said than done in the current situation, experts say.
While the move to have people deposit gold into banks is intended as a measure to stabilize the economy, experts are skeptical the policy will work, given the high inflation and policy shortcomings.
Central bank governor Nguyen Van Binh said there are between 300 and 500 tons of gold privately held by local residents that can be used for the economy.
"Management of the gold market should protect the right to keep gold assets, but the resources also have to be attracted and used for social and economic development, particularly during these tough times," he said.
Under the new plan expected to be announced soon the government will not interfere in the market but will ask lenders to attract the gold held by investors. Banks are now allowed to trade gold on account.
More details of the plan have not been made public, but local lenders say the government is considering ways to attract gold deposits by offering better returns and security.
Last month, joint-stock lenders Eximbank and ACB hiked their interest rates on gold deposits to 3 percent from 1-2.5 percent. But this is not enough, apparently.
"I don't like to deposit gold with banks. The interest rates are low, and procedures for depositing and withdrawing may take a lot of time," said Nguyen Thi Sinh, a retired worker in Hanoi's Hai Ba Trung District.
"It is better to keep gold at home. I can sell it any time, anywhere, when I need cash."
Le Tham Duong of the Ho Chi Minh City Banking University said the interest rate on gold deposits should be set at a level where depositors feel they do not make a loss compared to deposits in dong and foreign currencies.
"In fact, the biggest concern of local people is if they would be able to withdraw their gold deposits before the due date to grab the opportunity and profit from selling the metal when its price soars," he said.
Duong said historically, gold has always been on an upward trend, and may rise further this year. Analysts predict the metal could top US$2,000 or even $2,100 per ounce.
Bullion is climbing for the 12th straight year as investors seek to keep their wealth secure amidst volatility in stock markets, depreciating currencies, and the threat of inflation, Bloomberg said. Gold reached a record $1,921.15 an ounce last September.
Duong said many banks do not have transaction centers at all localities nationwide, especially in remote areas, preventing people from depositing their gold.
Lenders only receive deposits of gold bullion, and not many people want to convert their gold jewelry into bullion for the purpose, he said.
Former central bank governor Cao Sy Kiem said the central bank should issue gold certificates, which are allowed to be traded or mortgaged. This will help change the habit of holding gold assets among the Vietnamese people, and encourage them to bank the precious metal, he said.
People will sell or deposit their gold at banks only when the profit involved is higher than keeping it at home, said Truong Van Phuoc, general director of Eximbank. Thus, the most important task is to reduce inflation, which stood at 16.44 percent in February, he said.
Banks say they guarantee the interests of gold sellers, and will buy the metal at the international prices. However, gold prices in the domestic market are often higher than that of the world, economist Duong said.
The price of gold in Vietnam has risen more than 6 percent this year.
To stabilize the gold market, the State Bank of Vietnam is considering a regulation that allows the Saigon Jewelry Company, a dominant processor and trader, exclusive rights to engage in gold bullion business under central bank control.