Public opinion should not decide amendments to gold market management rules: economist

Vietnam is sufficiently equipped to manage the gold market and any amendment to Decree 24 should be based on legal, scientific grounds, not public opinion, says Dr. Nguyen Duc Kien, former head of the Prime Minister’s economic advisory group.

There is still some controversy surrounding gold market management. Should it be considered a currency or commodity? As someone involved in drafting Decree 24/2012 on gold market management, what is your assessment?

The gold market itself is very special and gold should not be considered a commodity or currency.

Firstly, according to the Price Law, gold is not among the nine items whose prices must be stabilized according to regulations.

Secondly, gold is considered a tool to stabilize the macro economy and related to needs of the market, specifically the gold jewelry market, not the gold bars market.

From the perspective of macroeconomic stability, the viewpoint of economic management agencies is to discourage people from buying gold to hoard. Therefore, over the past time, we have taken every measure to reform institutions and create an open business environment to attract idle resources to invest in socio-economic development. Those measures stem from the Party and State's policies.

In most specific measure, we set business conditions to discourage people from keeping gold bars, but created all conditions for those who need gold jewelry. Thus, the recent gold “fever” only applied to those who wanted to buy gold bars; gold jewelry was not part of the “fever” at all.

Unfortunately, management agencies do not have specific demographic data yet on people lining up to buy SJC gold bars. This is important input data that will help design appropriate policies.

There has been a big gap between SJC-branded gold bullion and world gold prices. Do you think we need to manage it? If so, how?

The price of gold sold on the market is based on the import price, import and export taxes, VAT, processing costs and the expected profit of the business. Thus, compared to the price of raw gold we are using for comparison, the difference is not too large at VND5-6 million ($236) per tael. In addition, the real demand, specifically for gold jewelry, has not really seen a sudden rise.

The recent fever occurred in gold bullion market, the hoarding of which the government does not encourage because it is related to macroeconomic stability. Therefore, first of all, it is necessary to clearly define that the goal of management policy is not to let gold become a means of payment in the economy in lieu of the dong (VND). The ultimate goal of governance to stabilize the macro economy.

In the past few months, gold prices have fluctuated sharply. We need to carefully consider and answer the question: why did this happen? If domestic gold prices follow world prices, it is a function of supply and demand. In Vietnam’s case, despite risks generated by the big difference between the domestic and world prices, customers continued to buy, so that is their decision.

When people opt to hoard gold despite foreseeing risks, prices of the precious metal can be regulated by the market. In this context, management agencies are assessing if any market manipulation is taking place that requires action to prevent a virtual fever from becoming a real one.

Some people have suggested reopening the gold import channel to increase supply, support reduction of domestic gold bar prices, and minimize gold smuggling. What’s your take on this?

First of all, we need to answer the question "Does importing more gold help economic growth and macroeconomic stability?". If it is beneficial, the government is ready to create all conditions for import, just like we do for petroleum, electricity and high-end textile and garment products. Currently, we continue to import gold jewelry and gold for export.

For gold bars, Decree 24/2012/ND-CP clearly stipulates that the State Bank of Vietnam organizes the import of raw gold to make them, based on monetary policy goals and gold supply and demand during specific periods.

What do you think about the proposal to abolish Saigon Jewelry Company Limited’s (SJC) gold bar producing monopoly when amending Decree 24?

According to Decree 24, we can convert gold rings into SJC gold bars. We just bring gold rings of sufficient age and hire the State Bank of Vietnam to process them into SJC gold bars. Perhaps we have forgotten what Decree 24 aims at. Retaining SJC gold aims at managing the gold bar market.

Do you think Decree 24 should be amended?

As of now, we have enough tools to manage the gold market. Any amendment to Decree 24 should also be premised on legal and scientific bases, not public opinion. We need to ask what the amendments proposed for Decree 24 aim at. Is it to develop the market or meet the needs of a few thousand people?

So there is a need to clarify who the beneficiaries would be in the gold market when regulations are amend.

I reiterate that we do not ban gold imports, but only define this as a conditional business area, because completely relaxing this market will have negative consequences on the macro economy, as has happened earlier.

Enterprises that need gold can register to import with the central bank. Gold processing businesses can commit to exporting 70% of their products and keeping the remaining 30% for the domestic market. We also have a very flexible mechanism for gold processors to participate in the global processing chain.