Vietnam in gold spree to support dong

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bankvn
State Bank of Vietnam

The State Bank of Vietnam has launched a concerted effort to acquire more gold from Vietnamese citizens in an attempt to shore up the dong, which has slid 21 per cent against the US dollar over the last five years.

The dong sunk last month against the dollar for the first time since 2011. The country’s central bank has announced that it has no intention of further devaluing the dong and will take whatever measures are necessary to strengthen it, including reigning in the gold market.

Vietnamese citizens hold an estimated 300 to 400 tons of gold bullion, according to Bloomberg News. This is a disproportionately large amount for a country the size of Vietnam, and results from historical events as much as from the Vietnamese people’s traditional trust in the security of precious metals.

The central bank hopes to effectively convert much of this massive treasure trove into Vietnamese dong currency, and is going about this in a variety of ways.

First of all, the central bank is purchasing gold, but simply providing dong currency in exchange for gold is not enough. Much of the reason that holding bullion reserves became so popular in the first place is that the Vietnamese people have experienced a lot of high inflation and depreciation of the dong over the years and therefore do not trust it. This distrust has led to a self-reinforcing cycle in the dong’s depreciation. It starts when people decide to purchase gold because they do not trust the dong’s stability. To purchase gold from importers, they need to convert their dongs to dollars, which further depreciates the dong, and thus causes more of a flight to gold.

To counter this vicious cycle of depreciation, the Vietnamese government has made the central bank the sole legal importer of gold and restricted all others. Likewise, Saigon Jewelry Co. has been made the only legal producer of gold bars. Also, on June 30 the government banned all banks from paying interest on gold deposits. Banks are now required to charge a fee for storing it instead.

Manipulation of the public’s supply of gold is not the only tool available to the State Bank of Vietnam in its quest to stabilize the dong, but it could prove a potent one.

Everything depends on the new gold rules effectively working together in concert to persuade a wary citizenry to hold more of their wealth in dongs.  Only time will tell.

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Reading Time: 2 minutes

State Bank of Vietnam

The State Bank of Vietnam has launched a concerted effort to acquire more gold from Vietnamese citizens in an attempt to shore up the dong, which has slid 21 per cent against the US dollar over the last five years.

Reading Time: 2 minutes

bankvn
State Bank of Vietnam

The State Bank of Vietnam has launched a concerted effort to acquire more gold from Vietnamese citizens in an attempt to shore up the dong, which has slid 21 per cent against the US dollar over the last five years.

The dong sunk last month against the dollar for the first time since 2011. The country’s central bank has announced that it has no intention of further devaluing the dong and will take whatever measures are necessary to strengthen it, including reigning in the gold market.

Vietnamese citizens hold an estimated 300 to 400 tons of gold bullion, according to Bloomberg News. This is a disproportionately large amount for a country the size of Vietnam, and results from historical events as much as from the Vietnamese people’s traditional trust in the security of precious metals.

The central bank hopes to effectively convert much of this massive treasure trove into Vietnamese dong currency, and is going about this in a variety of ways.

First of all, the central bank is purchasing gold, but simply providing dong currency in exchange for gold is not enough. Much of the reason that holding bullion reserves became so popular in the first place is that the Vietnamese people have experienced a lot of high inflation and depreciation of the dong over the years and therefore do not trust it. This distrust has led to a self-reinforcing cycle in the dong’s depreciation. It starts when people decide to purchase gold because they do not trust the dong’s stability. To purchase gold from importers, they need to convert their dongs to dollars, which further depreciates the dong, and thus causes more of a flight to gold.

To counter this vicious cycle of depreciation, the Vietnamese government has made the central bank the sole legal importer of gold and restricted all others. Likewise, Saigon Jewelry Co. has been made the only legal producer of gold bars. Also, on June 30 the government banned all banks from paying interest on gold deposits. Banks are now required to charge a fee for storing it instead.

Manipulation of the public’s supply of gold is not the only tool available to the State Bank of Vietnam in its quest to stabilize the dong, but it could prove a potent one.

Everything depends on the new gold rules effectively working together in concert to persuade a wary citizenry to hold more of their wealth in dongs.  Only time will tell.

Do you like this post?
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