Create a fair "playing field" for the gold market

Associate Professor, PhD. Ngo Tri Long

How do you evaluate the current administration and management of the gold market?

The gold market is an organic part of the financial and monetary markets. The gold market management agency, the State Bank (SBV), has issued many directions and implemented effective solutions to manage the foreign currency market and gold market; including continuing to consolidate the size of the State's foreign exchange reserves including foreign currencies and gold, limit ing dollarization and goldization, increasing confidence in the Vietnamese Dong, etc.

In particular, from 2012 to present, the domestic gold market is managed by Decree 24/2012/ND-CP on management of gold business activities. Decree 24 emphasizes a number of important contents, such as the State Bank's strict management of gold bar production activities, so the SJC gold brand becomes the only gold brand and is under the management of the State. The production of gold bars is only carried out according to the limit  granted by the State Bank of Vietnam each time. Furthermore, Decree 24 has narrowed the subjects allowed to do business in buying and selling gold bars; Strictly manage the import and export of raw gold, the production and sale of gold jewelry and fine arts, etc.

With the above regulations and the implementation process, it shows that since Decree 24 was issued, the domestic gold market has stabilized, there is no longer a "fever" in gold prices and gold is no longer a payment tool in the economy. However, after more than 10 years of implementation, some provisions of the Decree have revealed inadequacies, are no longer appropriate and need to be changed.

Could you please tell us more about these shortcomings?

From the State perspective, Vietnam is managing the gold market in a "one market" style, lacking integration and connection with the world. This difference between domestic gold price and world gold price is very high, especially SJC gold, creating a situation of gold speculation and smuggling. Furthermore, the State Bank of Vietnam regulates the market through administration and orders (issuing conversion licenses, managing production machinery of enterprises, etc.), leading to a deadlock in production and circulation, creating a scarcity of fake supply - demand, leading to price differences. Along with that, not allowing future gold trading, only allowing physical gold trading, which costs imported foreign currency and increases costs, and simultaneously cannot mobilize a large amount of gold from the people.

From an organizational perspective, businesses are currently not equal before the law in gold bar trading activities. Businesses dealing in gold and fine art jewelry face difficulties when they are not licensed to import gold, while demand is increasing.

From a consumer perspective, the monopoly of one brand of SJC pieces causes people to have to sell gold bars from other gold brands - even though the quality is the same - at cheaper prices, there are times that the difference is nearly 15 million VND/1 tael of gold.

The gap between domestic and world gold prices is too high, "encouraging" gold to be smuggled, bleeding foreign currency while losing budget revenue. Just type the keyword "gold smuggling" on Google and you can see a series of articles reflecting large and small gold smuggling missions across the border. This situation is especially hot and increases when the difference in domestic and world gold prices is too high and remains for a long time like today.

From the above issues, in your opinion, what changes do management agencies need to make to improve the efficiency of gold market management?

The consequence of the current management method is that the domestic gold market is going backwards compared to the world, so it is necessary to change the mindset with fundamental and strategic solutions. The fear of managers is that changing the market management mechanism to comply with international practices, if not managed well, will make the gold market unstable. This fear is necessary, but it is still necessary to believe and boldly change the way of thinking about gold market management.

Accordingly, we need to aim to develop a healthy market and limit  gold speculation. Along with that, encouraging the gold jewelry and fine arts market as a commodity production industry with healthy competition is considered a necessary factor. The State Bank only performs the function of managing and planning policies to regulate foreign exchange reserves in gold, but should not participate in production and business or regulate the market by administrative measures, and should not directly participate in the business activities of enterprises, it is necessary to create a fair "playing field" for businesses.

Furthermore, the Vietnamese gold market must be connected to the world gold market, and the current price gap must be eliminated through market solutions. Management agencies must gradually convert from the physical gold market to the futures gold market, trading on a centralized trading center, such as the Commodity Exchange that trades gold items. Along with that, it is creating more risk insurance and integration tools for businesses and investors, and accessing popular financial products in the international market, etc.

Therefore, the State Bank needs to amend Decree 24 to eliminate current shortcomings. Amendments require careful evaluation, careful consideration of opinions, the participation of many stakeholders and consensus in society. In my opinion, managing the gold market is a process of doing, testing and learning from experience. Policies and management measures for the gold market need to be flexible with each stage of economic development; there is no policy or measure that is right for all stages. The State Bank needs to be aware of the constant movement and demands of the economy, harmoniously combining management goals with the interests of businesses and consumers, in which national interests placed first.

Thank you, sir!