Vietnamese May Be Asked to Swap Gold Bullion for Certificates

VIETNAM'S central bank should issue gold certificates in order to 'mobilize' the country's large hoard of Gold Bullion, according to one of its former governors.

The proposal would involve individual depositing gold at local State Bank of Vietnam branches in return for gold deposit certificates. 

"Gold certificates should be divided into two types – named or unnamed certificates," former SBV governor Cao Sy Kiem told reporters this week.

Those holding named certificates – which would identify them as the original depositor of Gold Bullion – would, says Kiem, be able "to enjoy certain interest rates", while gold certificates carrying no name would be interest free.

"People can deposit bearer certificates at banks to benefit from interest," says Kiem," while they can use unnamed certificates for market transactions."

BullionVault analysis – using data from the International Monetary Fund and the World Gold Council – suggests that Vietnam's gold demand in 2010 was equivalent to around 3.2% of its gross domestic product. An estimated 500 tonnes of Gold Bullion is held in private hands.

"We would have $10 billion at our disposal if we succeeded in mobilizing just half that amount," Kiem says.

"When necessary, the state will intervene [in the domestic Gold Bullion market] with that gold."

Kiem's comments follow the State Bank of Vietnam's announcement last week of a new draft decree on gold trading – the latest in a series of decrees aimed at regulating domestic Gold Prices, which the central bank says are being driven by speculators. 

The draft decree includes a measure requiring gold dealers to have a minimum 100 billion Vietnamese Dong (approx. $4.7 million) of registered capital, as well as at least a two year trading record and outlets in three or more provinces or cities. 

Should the draft decree come into force as expected this Thursday, traders will have six months to renew their Gold Bullion trading licenses.

Another measure included in the decree requires Gold Bullion refiners to have a minimum VND500 billion registered capital, as well as a market share of at least 25%. 

This last requirement led to reports that refiner Saigon Jewelry Co, with 90% of the market, will now effectively be granted total monopoly status. Last week, current SBV governor Nguyen Van Binh told Vietnam's National Assembly that the central bank has "administratively acquired" SJC.

"Gold bar trading should be banned in the long term," according to Kiem, who also said the SBV should increase the size of its Gold Bullion reserves.

"In the short term we can distribute gold certificates to replace gold bar trading to ensure healthy and secured gold transactions while the state has gold in stock."

"The central bank may buy the idea," notes Hanoi-based economics site Vietnamica.

"But Vietnamese people will decide whether they love the certificate or not."

There is a tradition in parts of Vietnam of quoting prices in gold and US Dollars as well as in Dong. Physical Gold Bullion is also used as a medium of exchange for some larger transactions – for example house purchases.

The authorities, however, has outlawed making payments in foreign currencies or gold. Last week, the SBV imposed fines on three Hanoi-based institutions for foreign currency violations. Gold Bullion trader My Phuong was fined VND50 million for selling $1000 to a customer, newspaper Tuoi Tre reported. 

Ngoc Long Gold Processing Co was fined VND100 million for allowing Dollar payments, while FPT University had to pay VND500 million for quoting tuition fees in Dollars.

Should the SBV attempt to induce Vietnamese to swap their Gold Bullion for certificates, it is liable to draw comparisons with US president Franklin Roosevelt's infamous Executive Order 6102 in 1933, which required Americans to hand their gold to a Federal Reserve System bank.

More broadly, it would mirror a phenomenon observed in western economies during the first two-thirds of the last century, whereby greater and greater portion of Gold Bullion came under official, rather than private, control.   

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