Domestic gold prices have recently been some VND1-2 million a tael higher than the world’s average.
The difference must be eliminated with the recent move of the government which empowered the State Bank of Vietnam (SBV) to be the state monopoly in gold bullion production and trading.
Gold market intervention is now the responsibility of the central bank.
Though the public is still not used to the state monopoly on gold production and trading, and the situation may become more complicated when the policy is implemented, the monopoly does have a real benefit – the central bank will take full responsibility on the matter.
The price difference has recently been caused by the bank’s actions regarding gold imports, which isolated the domestic gold market from the world market.
Therefore, when SBV takes the job of managing all gold, it will have to close down the differences in supply – demand between the local and international gold markets.
SBV will have to balance the supply - demand gap by importing. Moreover, it will have to intervene to stabilize the gold market by organizing the production and trading of gold bullion, both locally and internationally.
Some enterprise said that gold prices can be reduced by removing import duties. According to the decree of the Government, gold raw materials imported by the SBV are no longer subject to import duties.
A leader of a local gold company said the SBV not only has to ensure a small gap between domestic and international gold prices, it must also ensure that the bid and ask prices of non-SJC gold bars will be the same as that of SJC ones.
When the central bank launches the new brand gold bullion – the SBV gold bullion, it must also use same price mechanism applied for all gold brands.
Economists have said that since the government allowed the central bank to add gold into the national reserves, SBV must regulate the gold market as it has operated the foreign exchange market in order to stabilize the gold price as it has recently stabilized the dollar price.
In the future, SBV will mobilize gold from the public, so the ultimate goal must be narrowing the price difference to preserve the capitals of the public depositing into the SBV.
There are many reasons, but the main reason for a state monopoly in gold production is to stabilize the foreign exchange market .
What has been happening for years is that the volatility of gold prices usually provokes the value of the US dollar. Gold price upswings are often accompanied by dollar fever in free markets, making people nervously rush to buy the greenback for saving.
This fever has also spread to the banks, as businesses with abundant dollar reserves retain theirs and create scarcity, while enterprises in need have to spend more Vietnamese dong to buy the greenbacks.
The situation created more pressure on the central bank to adjust the official exchange rate between the dong and the greenback, thus leading to the constant dong devaluation.
As the soaring gold price destabilized the forex rate, since gold must be bought by the greenback internationally, the SBV had to limit gold imports by offering licensing restrictions.
Businesses then collect dollars in the free market to switch to smuggling, mainly from Cambodia. Up to several hundred million dollars were collected in the free market from such illegal imports.
As a result the restrictions were phased out after the World Gold Council published reports stating that dozens of tons of gold had entered Vietnam. Up to several hundred million dollars were collected in the free market for such illegal imports.
So to stabilize the dollar, SBV must squeeze gold consumption through the monopoly on production of gold bullion.
Long ago, SBV realized the reasons behind the volatile gold prices, but the new exclusive production of gold bars seems to be the most effective for more than six months of testing.
SBV has implemented the "exclusiveness" for over half of a year in waiting for the Government to issue a new decree on the management of gold trading.
In 2011, SBV worked work with the Ho Chi Minh City government, the manager of SJC, to come to the decision that SJC can only produce gold bullion under SBV command.
With this decision, the main workshop for the processing of smuggled gold, which is formalized after shipping to SJC to become SJC gold, was blocked. Gold cannot be illegally transformed into SJC gold for sale, helping stabilize the forex rate.
In Vietnam, although there are dozens of brands of gold, the market only accepts SJC gold in trading. Gold bullion imported from foreign countries, including Switzerland, were melted down to be cast into SJC gold.
So the gold business enterprises, including enterprises with widely known brands like PNJ-DongABank, SBJ, and AAA, must also bring material gold to SJC for the cast.
Therefore, to control the contraband gold, management of the SJC brand is key.
In the future, as State Bank of Vietnam Governor Nguyen Van Binh told the National Assembly last year, the central bank will make the SBV gold brand .