Abolish monopoly on gold imports to gain more, lose less: expert

Removing the monopoly on gold imports would quickly cool down the gold market and promote the jewelry manufacturing industry, said Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council in a talk with The Investor.

Vietnam now has the largest disparity between domestic and international gold prices in the world. The gold fever that started at the end of 2023 has pushed the discrepancy even higher, causing nationwide gold fever and affecting people's psychology.

The discrepancy between domestic and global gold prices has at times reached approximately VND20 million ($785) per tael, prompting the government and the State Bank of Vietnam (SBV) to take intervention measures such as market surveillance and gold auctions to expand supply. It also requires all transactions to be properly invoiced, and is planning to alter Decree 24 issed in 2012 on gold market control.

However, the market has shown no signs of cooling, and the price difference between domestic and world prices remains high.

Experts have also come up with other ideas to help manage the gold market, including resuming gold imports and establishing a gold trading floor. However, attitudes on this issue are divided.

Many people believe that it is necessary to import gold to increase supply, thereby reducing the difference between domestic and world prices, but there are also concerns that this will use up foreign currency reserves, so reopening gold imports would do more harm than good. What is your opinion?

Imports are required to expand official domestic gold supply. According to the World Gold Council, Vietnam's annual gold demand is approximately 50 tons, with domestic mining output of only 600kg. For many years, we did not import through official channels, but the market was nonetheless filled with illegal gold. Since we do not accept gold imports, there is a significant disparity in domestic and global gold pricing, particularly for SJC-branded gold bars. This makes the smuggling situation even more serious.

Smuggling groups have forged the SJC brand on illegally imported gold with such accuracy and expertise that specialists find it difficult to identify. Gold imports are prohibited, so smuggling can be very lucrative.

Regarding foreign currency "bleeding," the disparity between domestic and global gold prices is too high, which generates insecurity. A major portion of the supply comes from smuggling, and foreign money can be lost in different ways.

Will importing gold solve the difference in gold prices between Vietnam and the world?

Of course. The gold market should be allowed to operate normally like other countries and allow imports and exports.

According to estimates by the World Gold Council, Vietnam's gold demand each year is about 50 tons, equivalent to 1.33 million taels of gold. If it does not go through official channels, it will be smuggled.

The average difference in gold price, both for SJC and other types of gold, compared to world gold is VND10 million ($392) per tael, so each year, we lose VND13,300 billion ($523 million) to smuggling.

Meanwhile, if official imports are allowed, Vietnam can increase its budget revenue through taxes. Businesses and individuals will be able to buy gold at world gold prices. At the moment, the government gets nothing, businesses and individuals have to pay high prices, sometimes reaching nearly VND20 million ($785) per tael more than world prices.

If Vietnam imports gold normally, we will not need to use up too much foreign currency, about $3 billion per year, equivalent to 1% of import turnover in 2023 and about 3% of our foreign exchange reserves.

Importing gold is not a terrible idea. When importing raw gold, domestic enterprises will be able to process jewelry for export, earning more than half of the foreign currency spent on imports.

We used to be quite strong in the jewelry export industry, but now the gold price difference is so high, the industry has died off.

Some argue that licensing gold imports will only benefit gold businesses. What is your opinion?

If we import gold, the government, businesses, and people will all profit because the government will increase its budget revenue from import and export taxes. Gold purchasing and selling firms, manufacturing businesses, and people will all benefit from being able to buy gold at world prices. It will also reduce gold pricing discrepancies and eliminate smuggling motivations.

However, when designing tax policies for gold imports and exports, it is important to note that if import taxes are too high, large price differences will persist, failing to achieve the basic goal of reducing domestic price differences.

If taxes are modest, pricing differences will fall and smuggling will diminish, as smuggling is mostly caused by price differences.

A proposal has been made to create a gold exchange based on China's experience. Would this be compatible with the Vietnamese market?

China has established a gold exchange, but it mostly serves as an intermediary for gold imports. China allows selected private banks and significant corporations to set up gold exchanges to replace the state's import monopoly. To avoid erratic import activity, only gold trading floors may import and resell to commercial banks and large corporations. All information about gold import activities is made public at this stage.

However, according to international experience, a gold exchange is only truly meaningful when all the gold circulating in the market is registered for trading at a depository or central bank.

That gold must be converted to a set standard and certified. Physical gold is stored at a depository, avoiding transferring it back and forth, which is both difficult and unsafe.

Gold traded on the floor is certified. For example, with five taels of physical gold, the owner will be granted five gold certificates. When trading on the exchange, the buyer has the certificate transferred into their name, while the physical gold remains in the depository.

For the Vietnamese market, the above plan to establish a gold floor is not practically feasible.

Firstly, we do not have any agency with enough capacity to set the gold standard.

Second, Vietnam's gold hoarding culture is mainly small-scale, with only a few coins, while transactions on a trading floor must be large enough to be certified.

Trading needs to be wholesale, but Vietnam mainly does retail.

The government has asked the State Bank of Vietnam to amend Decree 24/2012 on gold market management. In your opinion, what fundamental issues need to be addressed?

We need to have a different approach to the gold market, and manage it as a commercial activity according to trade policy. I would like to emphasize again that it is necessary to allow the import and export of gold as a normal commodity. This will be beneficial for the government, businesses, and people.

In addition, people currently prefer to hoard SJC gold bars mainly because of the perception that SJC gold is a monopoly of the State Bank of Vietnam, and only the State Bank of Vietnam has the right to import and export. Therefore, breaking the SJC gold bar monopoly is necessary.

If the current situation remains, gold auctions cannot solve the problem radically. There needs to be fundamental, long-term measures that benefit the government, people, and businesses.

Looking back, before Decree 24, the difference between the domestic gold prices and world gold prices was only about VND400,000 ($15.7 at the current exchange rate) per tael, but now it is VND3-5 million ($118-196) per tael for gold rings, and VND17-20 million ($667-785) per tael for SJC gold bars.

The VND13,000 billion ($510 million) price difference estimated above is the savings, sweat, and tears that 100 million Vietnamese people lose to smuggling every year. So it's recommendable to make gold imports and exports an official and managed activity.