Vietnam Continues Gold Market Clamp Down

Vietnam continues its gold market clampdown, of which much more is to be expected worldwide. News of regulation has swirled around Vietnam in recent weeks, and just yesterday, the State Bank of Vietnam said that more than 2,000 storefronts will qualify for trading gold bars through the nation under new rules designed to regulate the country’s booming gold market.  Those 2,000 storefronts, however, are comprised of only seventeen banks and 14 companies, the only companies to be granted licenses to trade gold bars in 2013.

In order to qualify for a gold bar trading license, under Decree 24/2012/ND-CP, bullion traders must have a minimum charter capital of VND 100 billion (US $4.8 million) and at least two years experience in the industry. The traders will also have to make tax payments of at least VND500 million from gold trading annually for two years in a row, and have branches in no fewer than three centrally-governed provinces and cities.

In order to qualify for gold bar trading, banks are required to have chartered capital of at least 3 trillion, be registered for gold trading, and own trading networks in at least five centrally-governed provinces and cities.

The regulation enables tighter controls in the Vietnamese gold market. Monetary authorities also must slow the draining of the governments gold holdings by limiting the points of sale.

This past fall, the State Bank of Vietnam was ordered by the central government to “clean up bad debt” in its banking system.  The central bank said in a statement at the time that it would target “weak banks” by the end of 2013, without specifically naming which measures it would take. Perhaps, first on a long list of objectives, tighter control over the nation’s real money supply was put above all other measures so as to “stabilize” (read: better control) the Vietnamese economy.

Some estimates claim that Vietnam “needs” $12-$14 billion in outside assistance, the equivalent of as much as 11% of gross domestic product.  The solution is already given in the problem, insofar as the mainstream media – in this case, WSJ – puts it: the assumption that Vietnam “needs” any outside assistance at all is bogus, and telling of a neo-colonial mindset.

Many governments will turn to increased regulation of the gold market. The US, which in many ways is a beacon of freedom in this respect (for this world, at least), will cave to similar regulations in the decades to come, meaning only certain licensed dealers would be able to sell gold bullion. Already, only five companies are able to buy directly from the mint, obviously signalling the lack of domestic supply.  By limiting the sale of gold, Vietnamese authorities are effectively asserting capital controls.   According to estimates, there are 300 to 500 tonnes of privately held gold in Vietnam. Nguyen van Binh, governor of the Vietnamese central bank, has stated that the government wishes “to mobilize gold from the public in service of the socio-economic development.”

In 2011, the central bank set increased limits on gold trading and significantly reduced the number of licensed refiners officially allowed to produce gold bars. From November 2011 forward all companies wishing to continue their operations had to hold a minimum of 500 billion dong in funds and a market share of 25%. Thus, smaller refiners and now dealers are going out of business.

The government has thrown much of the gold trading onto the “black market” or the free market or whatever you’d like to call the underground economy.  On it, gold prices have increased in relation to the gold fix and the value of the dong.  About a year ago, Vietnamese banks raised the interest on gold deposits, evidencing that the central bank wishes to control gold throughout the country.