While some experts believe that the Circular No 22, forbidding commercial banks from lending cash against gold collateral, will bring positive effects to the market, others argue that the legal document will take a big volume of gold out or circulation, which will be a big waste.
New circular will put pressure on the market
When issuing the new regulation on borrowing and lending in gold, Nguyen Ngoc Bao, Director of the Monetary Policy Department under the State Bank of Vietnam said that to date, 23 credit institutions have mobilized and lent in gold. By the end of September 2010, the total deposits in gold had reached 92.6 tons, worth 73 trillion dong. Meanwhile, the outstanding loans in gold had only accounted for 60 percent of the mobilized capital.
With the new decision, commercial banks, especially the ones in the south, now have to stop accepting more deposits and think of taking back the loans in gold.
Experts have warned that in the context of the current high and fluctuating gold prices taking back a big volume, estimated at 55 tons will have big impacts on the market.
An expert from Bao Tin Minh Chau Company said that recently, when the State Bank allowed to import only several tons of gold, this was enough to cool down the market. However, the estimated 55-ton volume of gold banks are going to take back is too big.
As such, the demand for gold will increase, while the quotas for importing gold are not likely to be granted. Even if the State Bank allows to import gold, the volume will not be large .
Governor of the State Bank of Vietnam Nguyen Van Giau, before issuing the new legal document, said that gold mobilization and lending can be seen only in Vietnam.
In reality, the demand for mobilizing capital in gold and lending in gold are quite commonplace in Vietnam. Therefore, when the central bank prohibits gold borrowing and lending, banks will lose profit, while deposits will lose a safe investment channel.
New regulation will not be able to prevent uncertainties
The State Bank of Vietnam, when issuing the new legal document, said that the new policy aims to settle the problems in gold circulation and reduce the gold and foreign currency speculation, thus helping stabilize the market.
However, experts still have doubts about the possible effects of the new document.
In Vietnam, gold can be divided into two kinds: merchandise gold and the gold kept among people. Merchandise gold is being used as a type of currency which is used to trade, contribute capital and to lend to others. Meanwhile, a big volume of gold is still lying among people as their assets.
Once banks are not allowed to lend in gold, they will not accept gold deposits any more. As such, instead of depositing gold at banks, people will keep gold under their pillows. This also means that a big volume of capital will be put out of circulation and control, which should be seen as a big waste.
The State Bank believes that the new regulation will stop people from hoarding, because they cannot deposit it for profit. However, some experts do not think this will happen, saying that it is not so easy to change the way of thinking of Vietnamese people, who have the habit of hoarding gold as their assets.
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