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Weekend coffee: How to unlock hundreds of tons of gold?

Mr. Truong Van Phuoc: "From the moment when a very large amount of gold from the people has been mobilized by the banking system, for the past two years this activity has been stagnant, now allowing it to resume can be compared to a new opening. flow".

The State Bank is implementing a project to mobilize gold resources from the population. Faced with a very large resource, estimated to be 300 - 500 tons, how can its value be exploited?

The project idea was announced in August 2011. Earlier this week, Governor Nguyen Van Binh officially hinted at the implementation orientation. Accordingly, in the coming time, the State will mobilize gold through credit institutions, using that resource for socio-economic development needs.

In recent shares, Mr. Truong Van Phuoc, former Director of the Foreign Exchange Management Department (State Bank), General Director of Vietnam Export-Import Bank (Eximbank) also expressed his views on the implementation direction of above project.

This "Weekend Coffee", VnEconomy continues to introduce Mr. Truong Van Phuoc's perspective on the above project.

Differences and benefits of the “G5” group…

At the beginning of the new year, I wish you good health and success in your work. It's a new year but we still have to mention the old story, the domestic gold price is still much higher than the converted world price. According to you, what is the reason?

That gap has existed for a long time. But recently, there has been a relatively large difference. In my opinion, there are some main reasons as follows.

Firstly, due to the need to limit trade deficit, the State Bank is extremely cautious about allowing gold imports to save foreign currency. Therefore, the international price of gold calculated through exchange rates is only a conceptual and reference price.

Second, the market always expects an increase in the price of USD compared to VND, making the domestic gold price higher than the converted price.

Another reason is that domestically traded gold is mostly physical gold, a very large proportion is SJC gold, which requires processing time so this difference is higher.

But I think in the gold trading business, the most important thing is the difference between the buying price and selling price. The current difference of about 10,000 - 30,000 VND/tael of gold is acceptable because the liquidity of gold is very high. Whoever sells also has a buyer, whoever buys also has a seller.

Although there are still limitations in intervention tools, especially in the legal framework, last year the State Bank also stepped in, typically with the solution of reopening gold accounts with the participation of the "G5+1" group. ” as many people say. However, that gap has not been completely shortened. As a representative of a member participating in that solution, do you have any explanation? Some opinions say that there are great benefits here for the participating members. What is your opinion?

First of all, it must be said that reopening the gold account in October 2011 is a very welcome move by the State Bank. In fact, the State Bank has allowed a number of commercial banks and a number of gold trading enterprises to open gold accounts abroad since 2004. At that time, gold derivatives were traded through Gold accounts have become very effective risk prevention tools.

But then, around the beginning of 2010, due to price fluctuations on gold exchanges strongly affecting exchange rates, the State Bank requested to close gold accounts. And in the following period, the conversion of gold from banks' mobilized gold resources into VND is also not allowed, as well as ending gold mobilization and lending activities.

These combined factors along with almost no longer allowing gold imports have caused the domestic gold price to increase more than the international equivalent price, sometimes reaching more than 3 to 4 million VND/tael. The term “G5+1” was born  in October 2011 in that context.

There are 5 commercial banks with strengths in mobilizing and lending gold, along with SJC, which have become the main intervention force to help create a large supply of sales in the domestic market. Only the last 3 months of 2011 were sold. over tens of tons of gold. It must be admitted that this intervention is highly effective, because from a difference of a few million VND/tael, during the intervention period, the average difference is about 900,000 VND/tael, sometimes even 400,000 VND.

Currently this difference is 750,000 VND. Such a shortening of the price difference is quite radical! The comparison of domestic and international converted prices is actually very relative. Saving about 2 billion USD because there is no need to import tens of tons of gold to intervene but people can still buy gold at a relatively low price is a reality worth thinking about given an important financial resource, gold.

As for public opinion about the interests of the "G5" group, sir...

That is also an issue that needs clarification.

If gold is not allowed to be imported, there will no longer be connectivity from the perspective of gold position. That is, if you sell 100 kg of gold domestically (from the people's gold savings), you cannot transport 100 kg of gold abroad to warehouse and return to the people. There was confusion when calculating that simple calculation. Actually, if you sell 1 tael of gold domestically, for example 44 million VND, you now have to buy 45.3 million VND, which means a loss of 1.3 million VND. But thanks to having a foreign gold account, when selling domestically, you buy the equivalent of 3,214 ounces abroad, for example at a price of 1,690 USD/ounce, now selling internationally for 1,740 USD/ounce, you get a profit of 50 USD/ounce, equivalent to equivalent to 1.2 million. Thus, the intervening banks still have to suffer losses. They bring profits abroad to share with people who bought physical gold at low prices before.

Of course, do these banks suffer losses? Sure is not. Why? Because in the past, they mobilized gold at a high cost, but the State Bank prohibited them from lending or converting it into dong. They suffered big losses. Now participating in the intervention, they are converted into dong, so using this dong is profitable, both offsetting the cost of mobilizing gold and the loss during the intervention. Of course, this amount of dong, according to the State Bank's intervention request, is bought and sold regularly, so there is not a large balance.

In the long term, in your opinion, is there any way to completely resolve that gap? And can you share your forecast for gold prices this year?

The only way to completely resolve the difference in domestic gold prices and international gold prices is to allow gold trading in domestic accounts and gold trading in foreign accounts. Of course, this activity needs to be strictly managed and carried out through the commercial banking system. The international gold price is used as the reference price, along with the USD/VND exchange rate, creating the listed gold price in VND.

Regarding the gold price forecast this year, I would like to share some information that international organizations have predicted, perhaps gold will reach 2,000 USD/ounce, or even 2,200 USD/ounce by the end of 2012. Those may be peak levels at times, the average price for the year in my opinion is 1,900 USD/ounce. If the forecast is like that, the trend line of gold is going up. However, in the short term, gold prices may increase further, but in the medium and long term, we must be very careful with the reversal of gold prices, because gold prices have increased extremely rapidly in the past few years in the context of the economic crisis. of the world.

When holding a great resource in your hand...

Returning to the project to mobilize gold from the people as mentioned above, how do you define its content and implementation direction?

Gold is a financial resource that needs to be recognized in our country's economy. Therefore, mobilizing gold from the people is a correct policy. The international market recognizes the convertibility of gold, of course gold according to international standards.

I have not studied the State Bank's gold mobilization project. But you can imagine it like this. The State Bank allows commercial banks to return to mobilizing gold as entrusted agents so that they can use this mobilized gold to buy treasury bills of the State Bank. This amount of gold can be brought to the State Bank or kept in bank warehouses. Depending on the specific situation, the State Bank can swap this amount of gold with foreign banks to earn foreign currency. Or you can entrust banks to swap with foreign banks. This amount of foreign currency earned is inevitably an item in the balance of payments, increasing the state's foreign exchange reserves.

On the other hand, the State Bank can also use this mobilized gold source to intervene in the gold market by selling gold to the market through the system of commercial banks.

In short, when there is a large amount of gold in hand, the State Bank has many ways to use this resource.

Using those resources, what should we consider the value or effectiveness of the project when implemented, sir?

The first point that can be seen is: from a very large amount of gold from the people up to now being mobilized by the banking system, for the past two years this activity has been stagnant, now allowing it to return can be compared to a breakthrough. clear a flow. It not only helps banks return to gold-related services, but much more importantly, creates a legal framework that ensures people's gold property rights.

The second point, in my opinion, has been talking about "anti-yellowing" for a long time. We know what to do, but how to do it seems confusing. This gold mobilization project represents a new way of doing things, with a very high chance of success.

Third point, as we all know, in addition to its function as a normal commodity, under certain conditions gold is also a financial asset and its convertibility into foreign currency is very high. Our country must continue to handle the problem of foreign exchange balance at the national level in efforts to industrialize and modernize the country, so mobilizing gold from the people opens up opportunities to contribute to meeting this balance problem. 

Finally, from the perspective of operating monetary policy, the State Bank's gold trading activities with the market can be seen as a tool to influence the money supply and affect the psychology of the market.

In the proposed direction, the State Bank said that there will be tools to "insure" price risks. In your opinion, how is that insurance mechanism implemented?

If we have access to risk insurance tools of the international market, hedging gold price risk is a good thing to do. It seems that when we Vietnamese people participate in gold trading, we mostly do it in the buying direction. It's not that they can't predict when the gold price will go down, but if we don't have gold on hand, how can we do it? to sell and then buy back when the price drops.

I give that example to show that derivatives are very important for price risk hedging operations. After the credit crisis in the US in 2008, our policymakers were quite cautious about derivatives. That's understandable. But when using derivatives, it is necessary to anchor them in specific market conditions. In our case, it will be a long time before we have to worry about transformations and consequences from derivatives.

As you mentioned, as well as in the orientation of the State Bank, it is possible to convert part of the mobilized gold resources into foreign currency, into foreign currency reserves. Is it reasonable to consider that it is turning "yours" into "mine"?

If we say so, at some point someone will question whether the hundreds of tons of gold in the population today are "mine"? Because we cannot produce gold. But our people produce labor, create exported goods, and earn foreign currency, of course, some of which has so far been converted into gold. So in that "human" foreign currency, it already has a "mine" part.

Here is a theory of relativity.

That's a long story, but the international financial market specializes in doing this. If one financial asset is bought outright and sold into another financial asset, everyone knows that this transaction is spot trading. It is forbidden to try to mortgage one asset to get another asset, which is a swap operation. Suppose we immediately sell the people's gold, then we will immediately control "people's" foreign currency. Even temporary foreign capital flows into our country, such as indirect investments, contribute in one way or another to our country's foreign exchange reserves.

That is the purpose and desire, but when implementing the above project, when operating that resource, in your opinion, what are the risk factors that need to be taken into account?

Saying there is no risk at all seems too subjective. But I believe the risk is extremely small.

There are difficulties that may be encountered, but they are only technical in nature and need to be predicted before implementing the project. For example, when people want to withdraw gold before maturity, how should they handle it? Can commercial banks discount gold bills purchased from the State Bank before maturity? How are people's needs to buy and sell gold met... Those are problems that can be handled.

Solution for a segment

What about the benefits of gold owners? Or how can they decide and trust to deposit gold in the bank when implementing the project, sir?

Using VND to buy gold to deposit in commercial banks to preserve your capital is ultimately a trade-off. Because the gold deposit interest rate is definitely much lower than the VND interest rate. Gold prices can increase or decrease. But the policy goal is to find the optimal solution for a segment of our country's financial market, the gold market, the gold resource among the people.

Market developments will automatically be information inputs for people to self-adjust their investment decisions.

As discussed previously, he said that a component operation for this mobilization mechanism is opening gold accounts for people. So how should I open it and will it lead to inadequacies and disturbances like trading gold accounts through gold exchanges in previous years?

People deposit gold in a savings account at the bank, then naturally a people's gold account is formed. What the market expects is to change a practice that has existed for a long time in our country: people like to buy and sell physical gold.

If there is an object that serves as a reference for gold price fluctuations without reference to a specific physical gold bar, it can only be an index, an index. This index must necessarily refer to international gold prices and the USD/VND exchange rate. Therefore, if banks open gold accounts abroad, they can provide direct gold trading services to people, and the need to buy and sell physical gold will certainly be much reduced.

There will be no inadequacies or disturbances like in previous gold exchanges because this service is purely about buying and selling gold on an account that almost copies international gold price fluctuations. Of course, we also have to deal with technical issues, such as the gold status of domestic banks in foreign banks...

(Source MINH DUC |

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