Vietnam should lift the prohibition of trading gold on overseas accounts to encourage local lenders to mobilize the metal from Vietnamese residents, a local gold expert said.
Arguing that such a move would boost the economy, Deputy Chairman of the Vietnam Gold Business Council and World Gold Council consultant Huynh Trung Khanh said most commercial banks offer gold deposit rates of less than one percent, discouraging residents from depositing the metal.
He added that Vietnamese currently keep at least 500 tons of the precious yellow under their pillows.
"Vietnamese people traditionally keep gold at home," he said. "But in the past few years, when commercial banks offered high interest rates [up to 7 percent per year at times], they deposited the metal. However, with current rates they no longer deposit," he said.
Explaining why lenders have slashed gold deposit rates this year, Khanh said commercial banks previously sold mobilized gold for dong and then lent it for profit. "When necessary, they bought the metal from foreign countries to pay debts. But now banks are not allowed to trade gold overseas, so they don't dare to mobilize the metal anymore."
"As a result, gold from residents is not going into the banking system or the national economy. Vietnam can't attract big capital this way. Meanwhile, the volume of gold is worth nearly US$20 billion, not a small figure. If we can use this sum, foreign debts will decrease."
In January, the government announced that financial institutions and gold traders must close their overseas gold trading accounts by March 30.
"It is necessary to remove the ban on trading gold on accounts overseas so that lenders will feel safe about liquility and moblize the metal," said Khanh.
"To curb speculation, the State Bank of Vietnam can control these transactions by ordering commercial banks to report their trading."
He said the central bank could also issue gold bonds.
"After getting gold from residents, it can sell the metal for the dong or dollars to pour into the economy. The bank can then buy gold from foreign markets to pay debts and it should purchase the metal under future deals to avoid risk."
Khanh said commercial banks could attract around 20 percent of the gold volume from residents, higher than any amount recorded in Vietnam, while they should mobilize 70-80 percent to feed the banking system and the economy.