A local gold shop's employee shows off gold bars in Hanoi. The central bank plans to restrict the trading of gold bars in Vietnam.
The State Bank of Vietnam has introduced a new draft decree aiming to reduce the number of gold producers and traders in a market it says is getting out of control.
The draft decree, completed a few months later than expected, includes a new set of criteria that industry insiders say most companies will not be able to meet.
According to the central bank, Vietnam now has around 12,000 gold traders, mainly in large cities. Eight credit institutions and trading companies have also been licensed to produce gold bars.
Rising gold prices have kept the market for the metal unstable, inciting speculation and hoarding among the public and businesses, the central bank said.
A gold frenzy sent prices of the metal to a record high of VND48.5 million per tael in August, far outpacing the global market. Prices have eased since then, but compared to a year ago, the country's gold price index has surged by more than 40 percent so far.
Economic difficulties and high inflation have also dampened confidence in the Vietnamese dong, leading to even more gold holdings, the central bank said.
But the State Bank also admitted to inconsistencies and loopholes in regulations concerning the management of the market. For instance, Decree 174, which has governed the market since 1999, does not cover the trading of gold bars. "As a result, gold bars are widely available and can be bought and sold at almost all gold shops around the country, gradually becoming a means of payment and getting out of control," the bank said.
The central bank said it plans to reorganize the market in order to restrict the trade of bullion and prevent hoarding. However, the rights of citizens to keep gold holdings and trade the metal will continue to be protected, it said.
Under the State Bank's draft decree, gold traders would be required to have a registered capital of at least VND100 billion (US$4.76 million), an annual tax payment of VND500 million over the two most recent years, and a presence in at least three major cities, like Hanoi, Ho Chi Minh City and Da Nang. The goal is to bring down the number of gold trading businesses sharply to help the central bank manage the market more effectively, it said.
The requirements for gold producers are much higher.
The existing eight producers have to prove that they have a capital of at least VND500 billion and a minimum market share of 25 percent.
HCMC-based SJC is the only company standing out from the eight, considering it holds more than 90 percent of the gold bar market.
Very few businesses are capable of meeting all the new requirements to continue producing gold bars, Dau Tu newspaper reported on Monday, citing an industry insider.
Vu Minh Chau, director of Bao Tin Minh Chau, one of the largest traders in Hanoi, said his company would have to withdraw from bullion production due to ineligibility.
There will be only one or two gold bar producers left in the market while the number of traders will be limited to just a handful, he said.
"It's reasonable to restrict the number of gold producers and traders," Chau said. "But if the requirements are set too high, very few companies can meet them, which could likely lead to monopoly," he warned.
Dau Tu said other experts, however, support the central bank's measures to tighten controls over the gold market, saying the use and hoarding of gold needs to be clamped down on.
Phi Dang Minh, a former official at the State Bank of Vietnam, said gold is also performing as currency, so it is necessary to keep a tight rein on the production and trade of the metal.
Tran Trong Quoc Khanh, director of the gold trading arm of Asia Commercial Bank, said the proposed measures are vital for the economy.
"The number of producers and traders has to be cut down, and it's a must. Businesses have to deal with it: they can join the market if they have capital of VND500 billion; otherwise they will have to quit," Khanh said. The director added that he believed the central bank will not allow a monopoly on the market.