Vietnam's Gold Import Ban: Implications

Source:

"Questions and answers on gold in Vietnam and the ban's implications."

Vietnam's central bank said on Thursday it might allow companies to import gold if domestic prices got "unreasonably high."

Here are some questions and answers about gold in Vietnam and the ban on imports.

How Are Vietnam's Gold Imports Regulated?

Vietnam imports 95% of the gold it consumes and these imports are regulated by the State Bank of Vietnam. At times when the central bank is not granting licenses, the official channel for imports is cut.

Why Are Gold Imports so Tightly Regulated?

The central bank stopped granting gold import licenses in May 2008 in a move to contain the trade deficit, cool inflationary pressure and support efforts to stabilize the economy. The trade deficit had hit a record high of $11.1 billion in the period from January to April 2008 and in April annual inflation had hit 21%.

The central bank has since eased the ban several times with limited quotas, letting businesses import as domestic prices have surged.

What's the Link Between Gold and the Dong?

When a gap develops between gold prices onshore and those on the world market, speculators rush to buy dollars to smuggle gold in, which puts downward pressure on the dong VND=VN.

Surging gold prices make dong savings less attractive, which drives people to convert dong deposits into gold. This may intensify inflationary pressures.

What Has Been the Effect of the Gold Ban?

The gold import ban has allowed the central bank to restrict the amount of foreign exchange used for imports, but it has created a scarcity, or at least the perception of it, which has pushed domestic prices higher than world prices.

Vietnamese hold more gold per dollar of income than anyone else in the world, underlining the lack of confidence in the local currency, the Asian Development Bank says.

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