Gold trading floor solution to let dead capital in people flow into the economy

It is difficult to go against the general trend in the world.

Following a series of articles by Lao Dong Newspaper reflecting on the shortcomings of the gold market, on December 28, 2023, Prime Minister Pham Minh Chinh signed Official Dispatch No. 1426/CD-TTg to the Governor of the State Bank of Vietnam; Ministers of the Ministries of Public Security, Industry and Trade, Finance, Justice, Information and Communications; and the Government Inspector General to direct solutions to manage the gold market.

In particular, the head of the Government requested urgent effective solutions to manage and operate domestic gold bar prices according to market principles, not allowing the gap between domestic and international gold bar prices to remain as high as in the past, negatively affecting macroeconomic management.

At the same time, review the legal framework, mechanisms, and policies related to the management of the gold market and the trading of gold bars and gold jewelry... Summarize the implementation of Decree No. 24/2012/ND-CP of the Government on the management of gold trading activities to promptly propose to competent authorities to consider amending and supplementing regulations, ensuring the improvement of the effectiveness and efficiency of State management tools for the gold market, developing a transparent, healthy, effective and sustainable market. The State Bank must complete all of this work by January 2024.

Prime Minister Pham Minh Chinh: Urgently have effective solutions to manage and operate domestic gold bar prices according to market principles.

The State Bank needs to make a comprehensive assessment of the domestic gold market situation and the State management of the gold market, including the production and trading of gold bars, SJC brand gold, jewelry gold... and specifically identify the achievements, limitations, shortcomings, problems and causes, and lessons learned.

From there, there is a basis to propose management solutions in the coming time, ensuring strictness, feasibility, efficiency, compliance with regulations, authority, and stability of the gold, foreign exchange, and currency markets, contributing to limiting the goldification of the economy, ensuring national financial and monetary security.

Speaking to Lao Dong Newspaper, a representative of the State Bank said: It will prepare to implement a plan to intervene to stabilize the gold market. In January 2024, the State Bank will submit a summary report on Decree 24, including proposals to amend and supplement a number of regulations on gold market management to suit the new market context.

On that basis, Lao Dong Newspaper proposes a number of solutions to stabilize and develop the domestic gold market, integrate and connect with the world, including considering the establishment of a gold trading floor - something that other countries are taking full advantage of. Precious metals will therefore not only stay in safes but will "flow" into the economy, acting as a catalyst for socio-economic development activities.

Associate Professor Dr. Ngo Tri Long - an economic expert - agreed with this proposal. He said that the State's complete ban on gold trading and the illegal opening of gold trading floors makes management difficult. The world is currently shifting from the traditional physical commodity trading market to the futures trading market with more convenient investment products (derivative products, fund certificates, etc.) through futures contracts and options contracts. Meanwhile, Vietnam only focuses on managing the production and trading of physical gold.

“Prohibiting gold futures trading and only allowing physical gold trading causes foreign currency imports to be expensive and increases costs for businesses. With the current approach, the State cannot mobilize a large amount of gold from the people. In addition, the Vietnamese gold market needs to be connected with the world gold market. It is necessary to gradually convert from the physical gold market to the gold futures market, trading through futures contracts. Businesses and investors will thus have more risk insurance tools and integration, and access to popular financial products in the international market,” said Mr. Long.

The expert suggested a solution that could allow the Commodity Exchange to trade gold futures through futures contracts and options contracts like advanced countries in the world. Participating members must meet strict standards and be allowed to import and export gold. This is what countries like the US, Japan, India, Thailand, etc. are still doing.

According to Mr. Dinh Nho Bang - Vice President of Vietnam Gold Trading Association (VGTA), international practice manages gold in two areas: physical gold and non-physical gold. Among them, the most common are gold exchanges and gold accounts, but Decree 24 does not mention it, only mentioning other gold trading.

“The Vietnamese market already has commodity exchanges, but not gold. Previously, exchanges spontaneously sprung up, but due to road construction without markings, vehicles were running around haphazardly. I propose establishing a national gold exchange managed by the State. The important issue is how to build a legal corridor,” Mr. Bang suggested.

Gold should be considered as a normal commodity in transactions.

Following international experience, Prof. Dr. Hoang Van Cuong - Member of the National Assembly's Finance and Budget Committee - said that we are currently focusing on developing the digital economy and digital transactions. Therefore, it is necessary to make gold transactions similar to other commodities on the market. Gold buyers can choose to buy for storage, to trade through futures contracts on commodity exchanges. Simply put, instead of buying physical gold and bringing it home, people will hold digital contracts and buy and sell on the exchange like stocks. However, because each country has its own specific policies, gold trading in Vietnam will be different.

First, the State Bank and the Ministry of Industry and Trade will study the establishment of a gold trading floor, considering gold as a normal commodity in transactions.

At this time, the State agency plays a role in providing regulations, corridors, standards, and operating principles of the gold trading floor (allowing physical gold trading, consignment, or through gold certificates) so that businesses and people can participate.

In particular, businesses participating in the transaction must have great prestige and financial capacity, and may be joined by commercial banks.

"The State does not directly participate in the trading process, but the State provides a legal framework to control that activity. The State does not import gold or protect any brand. Through trading activities on the gold exchange, we create competitive prices according to the market, there will not be too much difference between domestic and world gold prices. If gold is put into trading like that, gold will no longer be a part of the people's "dead capital" stored assets. Because when gold is traded on the exchange, it will become a capital market that can be mobilized for the purpose of socio-economic development" - Professor, Dr. Hoang Van Cuong emphasized.

According to Prof. Dr. Hoang Van Cuong, tax tools should be used to regulate the gold market, avoiding the massive import of gold that affects the exchange rate. When gold becomes a commodity, special consumption tax will be imposed on individuals who buy, sell, consume, and store gold bars; this will not apply to gold jewelry, but there must be a document specifying the distinction between gold bars and gold jewelry to avoid tax evasion.

In addition, it is necessary to digitize all gold trading activities, so that every pound and every ounce can be controlled. If this can be done, the State will be able to control the amount of gold bought, sold and traded every day, avoiding both tax losses and the goldification of the economy.

During the implementation process, Mr. Cuong noted: To have a national trading floor, it will require the coordination of many parties. Like the stock market, the Stock Exchange essentially only plays the role of conducting transactions and organizing the market. Holding people's shares is the responsibility of the depository center - a state unit that guarantees their assets to be deposited and held, and at the same time, provides people with stock codes. Therefore, to build trust among people, state agencies such as the State Bank stand up to guarantee that people will deposit gold in the warehouse and issue certificates for transactions.

"Gold traded on the floor or in the market are just different places, but import-export regulations are the factors causing foreign currency loss" - Professor, Dr. Hoang Van Cuong emphasized.

Risk management is always required when a gold trading floor is put into operation. For example, system risks, technical problems, security, confidentiality, anti-attack as well as the need for mechanisms, processes, supervision, and internal control. When trading inter-connectedly, domestic exchanges must comply with the regulations of foreign exchanges related to information security, anti-money laundering, etc.

Prof. Dr. Hoang Van Cuong - Member of the National Assembly's Finance and Budget Committee: Putting gold on the trading floor will make the market more transparent.

In 2011, when inflation increased, real estate prices stagnated, stock prices fell continuously, and the currency depreciated, people rushed to buy gold. At that time, we had to issue Decree 24 to prevent the goldification of the economy.

Up to this point, the Vietnamese currency has been well controlled, the macro economy is stable, and inflation is under control. If we still maintain the gold monopoly policy, it is no longer appropriate. Currently, gold is only a means of reserve, so there is no reason for the State to stand up and maintain the gold brand like that. It is time to abandon the gold monopoly, the State does not participate in buying and selling gold on the market but only participates in providing tools for control. But abandoning the gold bar monopoly does not mean giving freedom, any business can import and trade, but only allowing businesses that meet the conditions to participate. Gold transactions must be declared, to control tax payment.

If a business violates the declaration, it will be severely punished. Currently, the regulations on gold trading in Vietnam are also blank, the reason is not because it cannot meet the technical requirements. Any type of goods can have a suitable trading mechanism based on available policies and regulations. If gold can be put on a centralized exchange, the market will become more transparent, buying and selling will be more convenient and participants will have investment tools and price insurance.

Propose early amendments and supplements to the gold market management mechanism

Mr. Dao Xuan Tuan - Director of the Foreign Exchange Management Department, State Bank of Vietnam (SBV) - assessed that since Decree 24/2012/ND-CP on gold trading management was issued, SJC Company is not allowed to produce gold bars, SBV only hires SJC to process gold bars when needed and this activity is carried out under the supervision of SBV.

“The overarching goal of Decree 24 is to manage the gold market to limit the impact of gold price fluctuations on exchange rates, inflation and macroeconomic stability; and to limit the gold-ization of the economy,” said Mr. Tuan.

According to Mr. Tuan, the State Bank will continue to coordinate with the Ministry of Public Security and relevant ministries and branches to strengthen inspection and examination of gold trading activities.

The representative of the State Bank affirmed that in January 2024, it will submit a summary report on Decree 24, including proposals to amend and supplement a number of gold market management mechanisms to suit the new market context.

Minh Anh

Experience in establishing gold trading floors in other countries

The Shanghai Gold Exchange (SGE) was established in October 2002 by the People's Bank of China (PBOC) after approval by the State Council and is supervised by the PBOC. The SGE is organized into two markets: gold trading through accounts and physical gold trading. Four state-owned banks are selected as clearing banks and do not accept custody of money or gold. The SGE organizes many transaction points in cities to perform the delivery and receipt tasks, ensuring the T+0 settlement standard for spot gold.

The Futures Exchange of Thailand (FTEX, a member of the Stock Exchange of Thailand (SET) was established in May 2004 to serve as a trading center for futures or derivatives. In 2009, the first gold futures contract was launched for trading. FTEX has two standard gold futures contracts with different sizes: 10 Baht (152.44 grams) and 50 Baht (762.2 grams), standard gold quality 96.5%.

In the United States, the New York Mercantile Exchange (NYMEX) is a futures exchange owned and operated by the Chicago Mercantile Exchange (CME). The NYMEX is regulated by the Commodity Futures Trading Commission, an independent agency of the United States government. It should be noted that the exchange does not supply precious metals, but rather they are supplied by sellers as part of the contract rules.

Duc Manh

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