Gov’t studies making use of idle dollars, gold

Customers buy gold at a B​ao T​in- M​inh Ch​au Jewellery Company shop in Tr​an Nh​an T​ong Street, H​anoi​ (Photo: VNA)

Hanoi (VNS/VNA) – How to mobilise
idle foreign currency and gold from locals to invest in business and production
has become a hot issue recently, with the Government last week once again
asking the State Bank of Vietnam (SBV) to consider proposals.

At a working session with SBV last week,
Government Office chairman Mai Tien Dung said the Prime Minister has asked SBV
to study a more appropriate interest rate policy to encourage local US dollar
holders to deposit the currency in banks, as the current interest rate of zero percent
discourages them to put money in credit institutions. At present, Vietnam still
has to borrow dollars from international markets at 4 percent interest, so there
should be suitable policies to tap dollars at home, he noted.

It is the third time the Prime Minister has
mentioned the issue.

Vietnam stopped the mobilisation of gold in
2011, and a similar move was applied for the dollar in 2015 when the zero percent
interest rate for dollar deposits came into effect. The policies have
contributed to restricting dollarisation and goldenisation in the economy and
avoiding chaos in the market, with locals not using the dollar and gold as
means of payment.

However, with the application of the
policies, for gold alone, it is estimated that there are currently some 500
tonnes held by the people, which would be very useful if converted into the dong
to invest in the economy.

A similar trend was also seen for the idle dollar
source. SBV applied the zero percent dollar deposit policy in December 2015,
which has contributed to curbing dollarisation in the economy, controlling
inflation and stabilising the macro economy. However, it has also prevented
dollar holders from depositing the greenback in banks.

As a result, some experts felt it is time
to get rid of the policy while the dollar/dong exchange rate was relatively
stable and inflation was low.

Tien Phong Bank director Nguyen Hung said
it would be difficult to continue with the policy, especially with the US
Federal Reserve increasing the interest rate. As the economy’s resources reach
their limit, the benefits of adjusting interest rates higher to mobilise
dollars to create new stimulus and generate a large source of capital for the
banking system should be calculated, he added.

Echoing Hung, banking and finance expert Can
Van Luc also proposed to adjust the interest rate upwards, since according to
his analysis, that local demand for dollar loans was very large.

According to Luc, in the first half of 2017
alone, demand for foreign currency loans increased by some 5 percent against
1.5-2 percent in the same period of 2016. Commercial banks were borrowing
dollars from abroad at an interest rate of 2.5 percent per year. Mobilisation
from the local people would be cheaper and not subject to several restrictions.
This move would contribute to lowering both input and output interest rates
while still avoiding a dollarisation situation, he said.

If the interest rate was maintained at zero
percent, keeping dollars at home or depositing them in banks was the same, but
if the three-month term had low deposit rates, such as 0.25 percent, then
people would consider depositing dollars in banks. This would generate a
relatively stable capital source for banks. If the term was more than one year,
the medium and long term mobilisation structure of the banking system would be
raised, the expert analysed.

Besides using banks as an indirect channel
to mobilise dollars, Nguyen Van Thuan from HCM City Finance and Marketing
University also proposed to use the stock market as a direct channel to attract
the source.

However, he said, the Government should
take more measures to make the stock market more transparent, with listed firms
paying due heed to sustainable growth, to attract dollar and gold holders.

To mobilise gold, Luc proposed to issue
gold free interest rate deposit certificates, which the holders could mortgage
at banks for loans.

According to Luc, the measure was more
flexible and would not increase goldenisation in the economy. He said other
countries such as India had been successful in applying this measure; however,
he noted that the application must be scrutinised and if it adopted, a suitable
time must be chosen.

Tien Phong Bank’s Hung also affirmed that
successful gold mobilisation to reinvest in business and production would be
beneficial, but it should have an appropriate policy as gold is quite different
from money.

Gold mobilisation is complicated and risky
as its price depends on the global and domestic market, he said, adding careful
scrutiny is required to make the mobilisation effective.

Experts also agreed that the most important
thing was to keep the macro economy stable and create a favourable business
environment, explaining that gold and dollar holders would automatically
convert it into dong when they found profitable opportunities in a stable macro

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