VietNamNet Bridge – The State Bank of Vietnam has, for the first time in history, has set a cap on the commercial banks’ gold position, an action that aims to restrict the gold speculation.
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A circular was issued by the State Bank of Vietnam in late December 28, 2012,
just before the long 4-day New Year holiday.
The circular stipulates that the gold position at the end of day of commercial
banks must not be higher than 2 percent of their own capital, and that the gold
position must not be negative at the end of day. This means that the amount of
gold to be sold by commercial banks must not be higher than the amount of gold
they sell.
The “gold position” is defined as the status of gold balance at the end of day,
as the result of the activities of buying and selling gold, which will be
calculated in Vietnam dong.
This means that if a credit institution has 3 trillion dong in capital, it must
not have more than 60 billion dong worth of capital by the end of day. If the
credit institutions cannot sell gold today, they will not be allowed to buy gold
the next day.
The newly promulgated circular clearly stipulates that credit institutions must
submit the reports on their gold positions of the previous days to the Foreign
Exchange Department of the State Bank of Vietnam prior to 2 pm every day.
Similar regulations have been imposed on the foreign currency positions of
foreign currencies for the last many years, explained as the solution that helps
the central bank better control the foreign exchange.
However, analysts have commented that the regulations on the gold position prove
to be stricter than the regulations on the foreign currency positions.
As for foreign currencies, the day-end foreign currency positions of commercial
banks can be higher or lower by 20 percent (+/-20 percent), while it is just 2
percent for gold. This means that commercial banks can enjoy a broader trading
band in foreign exchange activities than in gold trade.
Since the banks’ gold position is two percent only, banks will not be able to
carry short sale of gold, and they will be able to sell gold, if they can buy
gold before.
A senior official of the State Bank of Vietnam said that the new regulation aims
to strengthen the control over the gold trade activities and prevent the
commercial banks’ speculation.
To date, commercial banks have been considered the most influential forces in
the gold market, because they have large networks and own money. The gold market
several times staggered just because of the “big guy banks.”
The two percent cap is believed to be unreasonable and “safe” for commercial
banks. With the excess of purchase over sale at 2 percent at maximum, the losses
would be “bearable” to credit institutions.
The State Bank has granted licenses of trading bullion gold to 17 commercial
banks. The banks would have to bear stricter regulations than the 14 existing
gold enterprises, since the enterprises are believed to have lower capability of
making speculation.
A banking expert said that even a leading gold enterprise in Vietnam is just
capable enough to hoard several hundreds of kilos of gold.
The official from the State Bank has admitted that the newly released measures
would push the gold prices up in the immediate time. However, the bank believes
that the market would get stabilized again from mid 2013.
VNE