Stabilising the gold market is a pressing issue for the Vietnamese government with smugglers taking advantage of higher local prices to slip in the precious metal, leading to exchange rate distortions and weakness in the dong that’s hurting the economy.
Prime Minister Pham Minh Chinh and members of the National Financial and Monetary Policy Advisory Council are among top authorities who have been urging for solutions in recent months. The price gap of the metal locally over the international rate must be narrowed “to avoid adverse developments”, Chinh said last week as he ordered the central bank to step up measures to calm the market.
Vietnam tries to stabilise relations with China after ousting of president
Vietnam tries to stabilise relations with China after ousting of president
The rise in gold smuggling is fuelled by a combination of a lack of official supplies and flight-to-safety demands amid a struggling economy. This influx exerts pressure on the dong as smugglers need to buy dollars in the so-called black market to pay for the commodity.
### Impact of Gold Price Rise
The current gold smuggling situation in Vietnam is not only impacting the stability of the gold market but also affecting the overall economic health of the country. The increase in gold smuggling is causing distortions in the exchange rate and weakening the dong, making it challenging for the central bank to manage inflation effectively.
### Global Trends and Influence
The surge in gold prices globally, with recent all-time highs being reached, is further exacerbating the situation in Vietnam. Factors such as geopolitical tensions in the Middle East and the conflict in Ukraine are driving investors towards gold as a safe-haven asset. This trend is not unique to Vietnam, as other countries like China are also experiencing heightened demand for gold due to economic uncertainties.
### Monopoly on Gold Imports
Vietnam’s long-standing monopoly on gold imports and production has created a premium on the local price of gold compared to international rates. This disparity has led to a rise in smuggling activities, as legal avenues for acquiring gold are limited. Ending the state monopoly has been proposed as a solution to reduce smuggling and lower the local premium, ultimately benefiting the economy.
### Future Outlook
If the monopoly on gold imports is maintained, experts predict that the price gap and smuggling activities will continue to worsen. However, abolishing the monopoly could not only curb smuggling but also increase tax revenue from official imports. By addressing these key issues in the gold market, Vietnam aims to stabilize its economy and promote a more transparent and regulated system for gold trading.
