He argues that this move would facilitate normal market development, considering gold as a commodity. Additionally, there are plans for the establishment of an internationally connected gold trading platform in the near future. However, contrasting opinions deem this proposal as potentially precarious.
Decree 24 Debate: Addressing Gold Market Instability and Monopoly Concerns
The Central Bank is currently responsible for overseeing foreign exchange gold. Notably, the significant disparity between the domestic SJC gold bar prices and international gold bar prices, sometimes nearing VND 20 million per tael, is causing considerable instability. This gap not only impacts social sentiment but also poses negative risks to the stability of the financial market, currency, and the overall economy.
Some argue that Decree No. 24/2012/ND-CP, which grants SJC a "monopoly" on gold bar production, is a major factor contributing to this price instability. The notion of a "monopoly price" has been associated with this regulatory framework. However, there is speculation that the substantial "price deviation" may be influenced by external forces manipulating the market. Questions arise about who is behind the price fluctuations and the motivations for triggering increases in gold prices. This prompts concerns about investment and speculation in a market where excessively high prices may deter potential participants.
Decree No. 24/2012/ND-CP was introduced twelve years ago with the aim of addressing the chaotic conditions prevailing in the gold market at that time. The decree established the State as the sole authority in gold bar production, with a monopoly on managing the import and export of raw gold for gold bar production. SJC was designated as the national gold brand. Acknowledging its effectiveness in stabilizing the market, some argue that with the current stability in the market and gold being treated as a commodity, it may be appropriate to transfer oversight of the gold market to the Ministry of Industry and Trade for normal development.
The amendment of Decree 24 is currently under consideration, with Prime Minister Phạm Minh Chính issuing Directive 06. This directive mandates the State Bank to review Decree 24 and propose solutions for managing the gold market in the first quarter of 2024, adapting to the evolving circumstances.
Dr. Phạm Xuân Hòe emphasizes that, in principle, no central bank worldwide typically manages the gold market due to gold being considered a commodity. The Central Bank's role is primarily confined to overseeing foreign exchange gold, gold held in the State Bank's vault, and national gold reserves. The management of foreign exchange gold, involving solid gold, has implications for a country's monetary policy and exchange rates as it involves significant cross-border monetary flows.
Dr. Hòe argues that the import of raw gold for the production of commodity gold can be adequately regulated by granting normal import licenses to businesses without the need for a monopoly. He suggests the necessity of eliminating the SJC gold brand monopoly and advocates for the establishment of a globally connected gold market through a gold trading platform. The objective is to prevent inflation of gold prices by breaking the existing monopoly and fostering international connections. In the short term, if Vietnam's administrative capacity is insufficient, the pilot implementation of one or two gold trading platforms is suggested. However, considering the unique nature of gold as a commodity, Dr. Hòe stresses the importance of implementing a specific regulatory framework, outlining procedures for trading on the gold platform, qualifying participants, deposit regulations, and trading protocols.
Restructuring Vietnam's Gold Market: Ministry of Industry and Trade Takes Center Stage
The responsibility of managing the gold market should be transferred to the Ministry of Industry and Trade. This move is deemed essential for minimizing the impact of gold smuggling across borders once the gold market returns to stability, consequently preventing foreign currency losses. Additionally, it is proposed to establish a comprehensive framework and legal structure for gold transactions, treating them like any other ordinary commodity transactions.
Under this proposal, the Ministry of Industry and Trade would assume the role of managing the gold market, allowing the Central Bank to refocus on its core mission of handling monetary policy. The Central Bank would specifically concentrate on managing foreign exchange gold, ensuring a more dedicated and effective approach to operating monetary policy.
Supporting this viewpoint, Prof. Dr. Hoang Van Cuong, a member of the National Assembly's Finance and Budget Committee, advocates for the consideration of establishing a gold trading floor. He argues that having a dedicated platform for gold trading would enhance transparency in the market. With public and transparent order matching, participants would have immediate visibility into the number of sellers and buyers in the market, enabling informed decision-making. Transparent information is seen as beneficial for market participants, and the involvement of the State in overseeing these transactions is viewed positively for maintaining control and clarity.
Professor Hoàng Văn Cường has provided a detailed analysis of the repercussions resulting from the gold bar monopoly, lack of communication, and substantial differences in gold prices. The consequences identified are multi-faceted:
Firstly, individuals desiring to own and store gold may incur losses as they are compelled to purchase gold at exorbitant prices.
Secondly, there is an inherent inequality among identical gold bars. While they may possess the same quality, the price of SJC gold, protected by the State, is considerably high.
Thirdly, the negative impacts extend beyond individual losses, causing social harm due to the allure of profits from smuggled gold. The absence of import licenses for gold drives people to resort to smuggling, leading to a surge in illegal activities. This not only results in significant profit margins but also leads to the loss of tax revenue. Additionally, it hampers the creation of a transparent and fair competitive market and contributes to the loss of foreign currency, thereby affecting exchange rate management.
Despite the evident challenges, Professor Hoàng Văn Cường acknowledges the complexity of establishing a gold trading floor or a model for gold trading. Gold is not a typical commodity, and its trade involves different levels of participants. The primary exchange, where professional traders engage in international communication, contrasts with the secondary floor, catering to retail purchases, which allows for more flexible domestic trading to mitigate risks.
Crucially, Professor Cường emphasizes the importance of a well-defined legal framework for control, fostering the healthy development of both the physical gold market and the on-exchange gold market. This framework should address various aspects, including participant inclusion at different levels, international communication, and regulations for ensuring the integrity of gold trading.
