SBV's action to prevent banks’ gold speculation will help?

Jan 3rd at 12:51

03-01-2013 12:51:23+07:00

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.

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.