“A Proposal to Restrict Banks from Minting Gold Bars, Learning from Past Unintended Consequences”

The Vietnam Gold Business Association recently provided feedback on the draft amendment and supplement to Decree 24 on gold market management (Decree 24).

The association suggested that credit institutions, especially commercial banks, should not be allowed to engage in gold bar production and trading.

Explaining this suggestion, the association stated that according to the Law on Credit Institutions dated January 18, 2024, commercial banks do not have the function and mission of gold production. Their primary role is monetary operations, particularly credit activities and payment services.

“If commercial banks are allowed to engage in gold bar production and trading, they will be forced to allocate significant capital for investments in factories, machinery, skilled labor training, and ventures outside their core competency of providing credit and capital support to businesses for economic growth,” emphasized the Vietnam Gold Business Association.

Additionally, commercial banks are not specialized in gold production and trading, and history has proven that their involvement in gold bar production and trading before 2012 was inefficient. Some banks left prolonged undesirable consequences that were only stabilized thanks to the determined and effective direction of the State Bank.

Another concern raised by the association is the proposed regulation regarding the conditions for granting gold bar production licenses to enterprises with a charter capital of VND 1,000 billion or more. They believe this requirement is too stringent and may only be feasible for one to three gold businesses. With this regulation in place, the number of enterprises participating in gold bar production remains insignificant, allowing the state to maintain a monopoly on gold bar production and supply, thus limiting the gold bar supply.

The association proposed a more appropriate charter capital requirement of VND 500 billion or higher. They also suggested focusing on the enterprise’s production capacity, business efficiency, reputation, brand recognition, bar quality, and compliance with state regulations related to gold trading.

Regarding the proposed annual limit and one-time export and import license for gold bars and raw gold for gold bar manufacturers, the association recommended reconsidering its removal. They argued that this regulation increases red tape and hinders gold bar export activities, which could generate foreign currency for the country. It also deprives enterprises of opportunities due to the constant fluctuations and multiple factors influencing the global gold market.

Waiting for one-time permit procedures may cause enterprises to miss out on exporting or importing at optimal prices, affecting production efficiency and export operations.

The association suggested that the State Bank should determine the annual limit for gold bar exports and imports and raw gold imports and allocate them to enterprises from the first quarter of the year based on transparency and without generating additional licenses. Enterprises can then proactively choose the timing and volume (within the limit) for imports or exports to maximize efficiency. Periodic reports on the implementation of import and export limits should be submitted to the State Bank.

Any adjustments to the limits would be considered and decided by the State Bank. Additionally, the association requested the drafting body to consider a mechanism to encourage the import of raw gold for gold bar and jewelry production to meet domestic market demands and facilitate exports and foreign currency generation. They advised against creating a mechanism for commercial activities involving gold bar imports and exports.