Giau of State Bank calls gold markets ‘beyond control’

Under questioning by NA deputies on November 17, the State Bank Governor denied that it was an imbalance of supply and demand that caused gold prices to rocket recently.

State Bank Governor Nguyen Van Giau.

Though almost all the questions for the governor were long, his answers were very short. Unsatisfied, several deputies rose in protest.

A crazy day for the gold market

Gold prices

Deputies queried Governor Giau about the responsibility of the State Bank of Vietnam (SBV) vis-à-vis the extraordinary fluctuation of gold prices in recent days.  Hanoi deputy Nguyen Hong Son, for example, asked Giau if the central bank’s agreement to allow some commercial banks to import gold when gold prices reached $29 million dong per tael last week was timely or not.  What was Giau’s responsibility, Son asked, and what will the central bank do to prevent this situation in the future?

Giau said that since 1999, SBV has been assigned to control gold exports and processing of gold bars. Commodity gold in the market is controlled under the Enterprise Law. The central bank has kept a close eye on gold prices in the world market. On November 9-10, bank staff met with the directors of the five state-owned commercial banks and the gold association to find out whether people were withdrawing money from banks to buy gold or not.

The SBV governor confirmed that from 2005 to 2008, Vietnam imported 279 tonnes of gold, and since late 2008, it has exported gold, some 37 tonnes of gold bars plus around 57 tonnes of commodity gold, so the increased volume of gold still held by the people is huge, around 182 tonnes. Giau said this is the first time gold prices increased were not caused by an imbalance of supply and demand.

The central bank’s chief said that the bank paid attention to the opinions of experts as reported by the media and to the assessment of former government Cao Si Kiem, who is also a NA deputy, before announcing its decision to import gold to cool down gold prices in the Vietnamese market. Actually, only a few tonnes of gold were needed.

“Our decision was timely, not late. This is an experience in managing the market,” Giau stated. He said that the volume of imported gold is insignificant and will neither cause tension in the foreign exchange market nor cause trade deficit.

Answering deputy Hoang Thi Hao about gold trading floors, Giau said that these floors are outside the Bank’s control and this is a gap in the law.

“No agency controls the gold trading floors. The State Bank’s governor doesn’t licence gold floors. The government has set up a study group to develop a legal regime for gold trading floors,” he said.

Vietnamese dong devalues annually

The first deputy to question Giau, Vice chairwoman Le Thi Nga of the Justice Committee, said that the central bank’s function is stabilizing the value of the Vietnam dong.  What therefore is the responsibility of the government when the dong loses value, she asked. In 2010, when Vietnam plans to implement a flexible foreign exchange rate controlling policy, to raise the minimum wage and to remove the interest rate ceiling, how can the value of the dong be controlled?

Giau affirmed that the consistent goal of the State Bank is to use the monetary policy to stabilize the value of the dong. However, he admitted, the dong is losing its value on annual basis. Many factors influence the dong’s value, he stressed, including Vietnam’s economic structure and the productivity of the economy.  “In the future, when market conditions impact the management of exchange rates, we will coordinate with related ministries to deal with that as well as possible.”

Answering deputy-businesswoman Pham Thi Loan about how to deal with the tension in the foreign exchange market, Giau said that the fastest solution is tightening monetary policy (i.e., reducing deficit spending) and controlling trade deficit but this would have a negative impact on economic growth goals.  The recommendations of some experts to devalue the currency and manage it flexibly are dangerous, he explained, because the nation must repay large foreign debts. The commercial sector alone has $17 billion in foreign debt. The government is considering injecting more foreign currency into the market to deal with the current stresses.

Ineffective distribution of coins

Waving a blackened coin, deputy Le Thi Nga reminded Giau that in 2003, the central bank emphasized the necessity of introducing coins and promised to develop vending machines.

“Six years have passed and everybody knows about the ineffectiveness and the deterioration of coins,” Nga said. “As the current governor, you need to be responsible for ensuring the circulation of coins to avoid waste,” Nga chided.

Giau said that putting coins into circulation was the “decision of previous governors”. When he assumed his position, he realized the ineffectiveness of this scheme so SBV stopped issuing more coins while taking back poor quality coins.

Nga said that Giau’s answer was too simple. Why is it that other countries use coins well, but not Vietnam?  She also asked Giau to explain about his promise in the previous session to support development of vending machines but did not get an answer.

Many other deputies asked Giau about prices of gold and interest rate subsidy but the morning time ran out. Giau was scheduled to testify further at the Assembly’s the afternoon session.

VietNamNet will report further about the central bank governor’s interpellation in subsequent articles. 

Le Nhung