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How to mobilise public gold?

How to mobilise public gold?

Thursday 27, 08 2020
Viet Nam News The State Bank of Việt Nam has said no to the Việt Nam Gold Trading Association (VGTA)’s proposal to mobilise privately owned gold.

How to mobilise public gold?

Compiled by Thien Ly

Viet Nam News The State Bank of Việt Nam has said no to the Việt Nam Gold Trading Association (VGTA)’s proposal to mobilise privately owned gold.

An anonymous SBV official told Sàigon Times Daily that it would be very risky in terms of the price movements it might cause, claiming there has been no precedent by any government in the world in this regard.

One of the VGTA’s most important suggestions was that the central bank and Ministry of Finance should soon set up a national transaction floor for physical gold.

Since the Government issued Decree 24 on management of gold trading in 2012, which enables the central bank to directly intervene in the local gold market, the market has become very stable while the number of gold traders decreased sharply from 12,000 units then to 38 now.

Under the decree, bullion trading is only permitted by gold firms and credit institutions licensed by the central bank.

To be licensed, however, a firm must have chartered capital of at least VNĐ100 billion (US$4.8 million), paid VNĐ500 million or more in taxes for the last two years and have branches in at least three provinces or centrally administered cities.

As for credit institutions, they must have chartered capital of at least VNĐ3 trillion ($144 million) and be based in at least five provinces or cities.

These rules meant more than 10,000 small gold traders have shut down.

In mid-2011 the central bank decided banks can no longer accept deposits of or lend in gold to prevent volatility in the market and strengthen the đồng.

But it has just added to the tonnes of idle gold lying with individuals in a country where using gold as a means of payment and a speculative asset is common.

According to the VGTA, annual demand for gold bullion runs into dozens of tonnes. With the country mainly importing and exporting a little, increasing volumes are ending up in people’s hands.

The VGTA estimates it at no less than 500 tonnes, equivalent to $20 billion at current prices (VNĐ34.2 million per tael).

Meanwhile, the economy is in great need of funds for socio-economic development and this is expected to increase from next year when the country may not be eligible for official development assistance because of its rising income and ability to raise funds in the international market, according to the finance ministry.

The VGTA said mobilising the idle gold would help the country meet this demand.

But it said an official gold trading floor would need to be set up to ensure the mobilisation could be done effectively.

It was also necessary because the central bank’s ban on gold imports for non-licensed gold jewellers – the requirements to get jeweller’s licence are also steep --  forces them to buy gold in the black market, which sustains smuggling.

It would also enable the central bank to monitor gold transactions in the market.

The VGTA also called on the central bank to expand the bullion trading network to remote and rural areas to meet people’s legitimate needs and allow businesses to import gold for making jewellery for domestic use and exports.   

Many analysts agree with the VGTA’s proposals, pointing out that Việt Nam has in recent years issued international bonds several times to raise funds at high coupon rates.

If the Government can mobilise idle gold, it can use it as collateral to borrow at lower rates.

The Government has urged the central bank several times to mobilise idle gold, but in vain.

But other analysts have rejected the proposal saying it is not quite necessary since many people already used their gold to invest into the economy in recent years since the central bank announced policies that made speculation in gold less attractive.

As a result there have been no imports of the metal in the last two years, while before 2014 the country imported 30-50 tonnes of gold a year.

Meanwhile, the country’s current gold bullion demand is from 10 to 15 tonnes per year.This means that people’s gold savings and their normal transaction can meet the market demand.

VN firms find Russia increasingly attractive

Recently TH Milk Food Joint Stock Company of Vietnam (TH Group), maker of the well-known TH True MILK brand, announced the start of the first phase of a high-tech integrated dairy, cattle breeding, and fresh milk production project worth $500 million in Moscow.

It is Việt Nam’s largest food processing project in Russia and the first dairy project.

The $2.7 billion project will be developed in three phases through 2025. Once completed, the 140,000ha facility will house 350,000 heads of cattle and produce 5,900 tonnes of milk a day, equivalent to 1.8 million litres annually.

The project marks a turning point in investment ties between Việt Nam and Russia.

More significantly, this huge investment is headed not from Russia to Việt Nam as might have been expected, but in the opposite direction.

But the fact is more and more Vietnamese companies are going to Russia to explore opportunities, causing investment flows to be higher in that direction from Russia to Việt Nam.

Vietnamese firms have invested $2.93 billion in 20 projects, some of them huge ones like the Rusvietpetro joint venture worth $2.02 billion and the proposed $190 million Hà Nội-Moscow mall in Moscow.

Russia has invested $2 billion in 114 projects in Việt Nam, but this flow shows few signs of expanding.

In March VTB Bank, one of Russia’s leading banks, and Việt Nam’s sovereign fund State Capital Investment Company (SCIC) signed a memorandum of understanding to strengthen investment ties.

VTB customers can invest in projects and companies in which SCIC owns stakes, and Vietnamese firms in which SCIC has interests can invest in countries where VTB operates.

VTB will also be able to co-operate with SCIC’s partners to raise funds and do more deals in the international debt and capital markets.

Bilateral ties are expected to get a boost when agreements signed between PetroVietnam and Rosneft, the leader of Russia’s oil industry, are implemented on schedule.

Auto sales surge

More than 85,400 cars were sold in Việt Nam in the first four months of this year, 28 per cent up from the same period last year.

The Việt Nam Automobile Manufacturers Association (VAMA) reported that sales of passenger cars rose by 15 per cent to 47,530 units, commercial vehicles by 46 per cent to 31,668 and special-purpose autos by 65 per cent to over 6,210.

In January-April sales of locally assembled autos exceeded 66,120 units, up 37 per cent year-on-year, while sales of imported vehicles rose 4 per cent to nearly 19,300.

Sales growth was higher for locally assembled cars than imports in the first quarter. But things changed in April as the former dipped 2.5 per cent month-on-month to 19,500 units while sales of imported autos surged 29 per cent to 6,225 units.

Thailand led in auto exports to Việt Nam in the first four months of the year, with 10,155 units worth US$733 million, surpassing previous leaders China and Korea.

This is attributed to the preferential import taxes under the ASEAN Trade in Goods Agreement.

Under the agreement, import taxes on automobiles from ASEAN’s other members (Myanmar, the Philippines, Malaysia, Thailand, Singapore, Laos, Indonesia, Cambodia, Brunei) falls from 50 per cent to 40 per cent this year, to 30 per cent by 2017 and zero per cent by 2018.

Thailand has for long been a magnet for many well-known auto brands like Ford, Toyota, Honda, and Nissan, which have set up production facilities there.

Besides, the use of locally made components by foreign companies in the country has reached 80-90 per cent -- compared to 20-40 per cent in Việt Nam – leading to lower prices than in other member countries.

While last year Việt Nam imported 26,700 vehicles from China, 26,500 from South Korea and 25,000 from Thailand, in the first quarter of this year 7,800 Thai cars have been bought compared to 3,500 from China and 2,260 from Korea.

According to the General Statistics Office, Việt Nam US$669 million importing 28,000 completely built-up (CBU) autos in the first four months of this year, down 23.5 per cent and 20.4 per cent over the same period last year respectively.— VNS

Financial News

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