Vietnam Unlocks Gold Market Reforms to Stabilize Dong and Boost Economy

Vietnam is embarking on a significant transformation of its gold market, intending to relax the state's tight control and implement comprehensive reforms. This strategic move is anticipated to not only stabilize the national currency, the dong, but also to substantially reduce the considerable disparity between local and international gold prices, according to the Vietnam Gold Traders Association.

Huynh Trung Khanh, vice chairman of the association, emphasized that these policy changes are crucial for better regulating the gold market, curbing illegal smuggling activities, and ultimately fostering a more stable environment for the dong. The government's proposed plan includes ending its long-standing monopoly on the import and export of raw bullion, granting licenses to select companies and banks, and establishing a state-run exchange for trading. These measures are a direct response to the market's current distortions, where a significant local premium over offshore prices has fueled smuggling and exerted downward pressure on the dong.

Analysts view these developments as a "pivotal shift" for Vietnam, reflecting a broader national trend away from state dominance towards greater private enterprise. Lee Liang Le, an analyst from Kallanish Index Services, noted that while the Vietnamese government is proceeding cautiously, particularly given that over half of the eight approved banks are state-owned, the progress is highly welcome for both Vietnam and its regional neighbors, especially the easing of gold import restrictions. The reforms also align with a global surge in gold's value, driven by strong investor and central bank demand, making it one of the top-performing commodities this year.

Despite previous government efforts, Vietnam's gold prices have consistently outpaced global rates. Khanh highlighted that the price gap soared to as much as 20 million dong ($758) per tael last month, before settling to about 14 million dong, which still represents a 10% premium over international prices. The government's ambitious goal is to narrow this spread dramatically, aiming for a mere 2–3% difference.

However, the market is currently in a state of anticipation, awaiting detailed guidelines from the central bank. While the decree formally initiating these gold market changes is set to take effect on October 10, the central bank is still in the process of preparing a circular that will outline the specific implementation details. This delay means that many international dealers, despite seeing a promising business opportunity, are holding back until the rules surrounding gold imports are clarified.

Beyond the structural reforms, Vietnamese authorities are also contemplating additional measures to enhance market transparency and curb speculation. Plans include imposing a personal income tax on gold trading and potentially mandating that all gold transactions be conducted via bank transfers. These considerations come as neighboring countries, like Thailand, are also exploring similar taxation on gold trades due to concerns about their impact on local currencies.

Khanh believes the reforms hold potential for a far broader economic impact than just the gold market itself. He envisions Vietnam leveraging its skilled workforce and low labor costs to cultivate a world-class jewelry industry. With the right policies, the country could export billions of dollars' worth of jewelry, emulating its successful neighbors. Furthermore, importing gold from the US for processing and re-exporting to China could play a significant role in balancing trade relationships with both nations.

An often-overlooked aspect is the vast amount of gold hoarded by Vietnamese households. Based on past import licenses, estimates suggest at least 500 tons of gold could be sitting idle, largely outside the banking system due to a century of past conflicts. Khanh stressed that bringing this immense volume of gold into circulation would be transformative, stimulating business activity, curbing both hoarding and speculation, and ultimately alleviating pressure on the dong, providing a substantial boost to the national economy.