What options for the National Gold Exchange?

Many economists recommended that Vietnam develop a national gold exchange by studying the Shanghai Gold Exchange (SGE) model in China.

Experience from China

With the SGE at its heart, the domestic Chinese gold market is currently the biggest physical gold market in the world. Since 2013, over 2,000 tons of physical gold have been taken out of the SGE's vaults annually. For the majority of China's physical gold supply to be traded and delivered to the gold market, it must pass via the SGE. China's yearly gold demand is only estimated to be around 900 tons by organizations like the World Gold Council (WGC) and Thomson Reuters GFMS.

Three main objectives have guided the establishment of the gold market structure by the Chinese government, namely the PBoC: guaranteeing the highest quality of all wholesale gold transactions, assisting the government in tracking gold flows throughout the economy, and keeping an eye on the growth of the country's gold holdings. The SGE facilitates the internationalization of the RMB by linking the production, import, and consumption of gold as well as encouraging people to use real gold as a route for storage.

Three primary sources account for the majority of China's physical gold supply: domestic mining, official imports, and recycled gold. According to PBoC regulations, all imported gold in standard form must first be sold through the SGE. Banks, particularly global banks like HSBC, ANZ, and Standard Chartered, have the authority to import gold. According to the "one lot, one license" rule, banks must request authorization for every transport of gold. With a few extremely limited exceptions, including the export of Panda coins from the National Mint, physical gold exports are strictly prohibited.

Controlling the flow of gold

China's culture of hoarding and the PBoC's thoughtful gold accumulation policy are both factors in the country's continued dominance as the world's largest gold consumer. Re-exporting gold is prohibited in the domestic system, which keeps gold in the country's economy.

According to Associate Professor Dr. Nguyen Dinh Tho, Vietnam will learn how to manage gold flows by implementing comparable administrative and technical measures, preventing the flow of gold resources across the border or their unauthorized use. Resilience to international financial crises can also be improved by adopting the policy of progressively expanding national gold reserves through official channels.

Digitizing gold trading

Instead of restricting people's ability to trade gold, China establishes a robust, open, and easily accessible gold trading ecosystem that enables them to do so with ease. A calculated move to boost gold trade's appeal among consumers, lessen reliance on in-person gold dealing, and shift the gold market toward digitalization is the creation of the "Yijintong" app, which enables gold trading using mobile devices.

“Vietnam can employ this approach to create a State Bank of Vietnam (SBV)-sponsored official digital platform that would enable swift, secure, and law-abiding gold transactions. To properly manage cash flow and prevent gold speculation or money laundering, the platform must be connected to the tax management system, bank account system, and personal identification database,” said Prof. Dr. Nguyen Dinh Tho.

Standardizing gold trading

By successfully standardizing gold trading and making a clear distinction between the three product types—physical gold, futures contracts, and paper gold—the SGE has established a multi-layered, multi-structured gold market that can be used for risk hedging, gold reserves, and gold investment.

Vietnam can undoubtedly create an ecosystem for gold trading similar to that of China, according to Prof. Dr. Nguyen Dinh Tho, where banks, companies, and non-bank credit institutions are authorized to function within a defined framework and adhere to global standards for ethics, transparency, and anti-money laundering. In addition to aiding in origin tracking, the implementation of a digital identification for every batch of gold and a mandated computerized invoicing system enable stringent regulation of the gold's movement within the economy. Independent units that have been approved by the appropriate authorities should be tasked with inspecting and stamping quality.

Applying regulatory sandbox mechanism

Although Vietnam's existing legal system, particularly Decree 24/2012/ND-CP, has not kept pace with the market, China's adoption of this legal model demonstrates its flexibility in responding to changes in the world economy. By clearly outlining the responsibilities of the Ministry of Finance, the PBoC, and intermediate financial institutions in the administration of gold, management overlap has been prevented.

Prof. Dr. Nguyen Dinh Tho stated that to handle the paper and physical gold markets in Vietnam, it would be essential to thoroughly evaluate the country's current legislation and create an appropriate legislative framework. Vietnam must create rigorous post-audit protocols, open auction systems, inspection protocols, and technical standards. Using a regulatory sandbox approach for online gold trading will improve legal risk management and enable policy changes based on empirical evaluations.

Mobilizing gold from the people

An essential component of the plan to establish the National Gold Exchange is the policy of luring gold from people. China does not forbid gold ownership, but it does have a robust banking system that can take that quantity of gold into the economy. In order to lower the expense of personal storage and move the "dead" gold in individuals into the realm of economic development, people are encouraged to deposit gold in banks, earn interest, or transform it into financial products based on gold.

Prof. Dr. Nguyen Dinh Tho proposed that Vietnam should think about removing the first deposit from traceability in conjunction with a community financial education program to help people comprehend the advantages of turning tangible assets into profitable financial assets, lowering risk accumulation among individuals, and broadening the purview of government regulation.

To meet the needs of gold hedging and economic capital flow optimization, the National Gold Exchange will be a first step toward creating a gold derivatives market in the future.