Decree 24: Against the Wind

Looking back on the whole process, especially just before and after the promulgation of Decree 24, we will see the consistency and soundness of SBV’s policies and the bravery and excellence of SBV Governor.

 

Before 2012, the domestic gold market was messed up. The legal framework for this market was incomplete and unclear while roles and functions of management authorities were not defined clearly, resulting in free and messy market operations and posing risks to financial and monetary market as well as the economy.

 

Whenever the global financial market was volatile, domestic gold prices widely constantly fluctuated. It was quite often to see people jostling and rushing to buy or sell bullions at gold shops. Together with that, gold hoarding, speculation, and illegal goal export and import destabilised monetary policies, macro economy, and social order and safety.

 

Seeing that reality, the central bank was determined to “pacify” the gold market by advising the Government to issue Decree 24. This was seen as a breakthrough in stabilising the gold market, narrowing the gold bar market, and gradually ending the use of gold for transactions. However, this decree caused a “storm” in the market as it confronted mixed public opinions from the drafting to enforcement.

 

In a meeting with the press, Governor Binh revealed that pressure from public opinion before and after the deployment of Decree 24 was enormous. He even received anonymous threatening and attacking messages. But, these did not inhibit him and his colleagues from taking actions that he believed right, necessary and actionable to achieve the goal. Decree 24 might be a "blow" to some players on the market but it contributed to the stability of not only forex market and the entire economy.

 

The strong belief and steely determination of the leader of the banking system plus the support and direction of the Government and the coordination of all-tier authorities in carrying out Decree 24, the face of the gold market rapidly changed in a positive direction. The market had nearly 12,000 gold shops before the decree but it had only 22 credit institutions and 16 companies licensed to trading gold bars (this was a main reason for the protest against Decree 24). Then, the central bank moved from gold mobilisation and lending relations at credit institutions to gold buying and selling relations and organised gold auctions when necessary (76 pubic gold auctions were held in 2013, selling 68 tonnes of gold to credit institutions which used the precious metal to pay depositors and sell to the market). From then on, gold resources held the masses have been gradually transformed into economic forces.

 

In the past years, the gap between domestic and global gold prices has been narrowed. Before Decree 24, the price differential amounted VND5 million a tael. By the time, it shrank to VND100,000-200,000 per tael in March 2016. Sometimes, domestic gold price was even lower than the world rate. A specialist who used to fiercely oppose the SBV said “Any policy always has two-side effects and is never perfect. However, for the gold market, it is basically stable and governed by market mechanism and results are incredible.”

 

Mr Dinh Nho Bang, Vice President and General Secretary of Vietnam Gold Business Association, said, “As time goes on, Decree 24 has increasingly shown the correctness and fitted market mechanism, State objectives and world trends. I said that Decree 24 is completely sound.”

 

Sharing the same point of view, Dr Vu Dinh Anh, an economist, also said, "With Decree 24, we firstly restored the order on the gold market by selecting popular gold brands like SJC. Without doubt, the SBV stands behind this brand to ensure that gold has circulation value on the market as a legitimately stored asset.”

 

Secondly, we have redressed nationwide gold trading systems, ensured the order, avoided chaos and fevers and ended hoarding. In addition to the shift from borrowing - lending relations to buying - selling relations, the SBV has held gold auctions to supply gold to the market. When the supply met the demand, gold auctions were ended, thus creating a well-operated gold market. I think that we have achieved the target of bringing gold out of payment functions for economic deals, mobilising gold from the public for production and business activities, and filling the difference between domestic and international gold prices. Together with other policies, the stability of the gold market has helped maintain the stability of the foreign exchange market, stabilise financial and monetary markets, and stabilising macroeconomic performances.”

 

From the success of Decree 24, we can see the effect of other policies issued by the central bank in the past five years, including interest rate, exchange rate, bank restructuring and bad debt settlement policies and they share the same point: Facing numerous obstacles and difficulties at the time of enforcement. However, as time goes on, those policies have proved sound and efficient in the country’s context and conditions.

 

Those successes not only illustrate the consistency of the SBV to its policies and the bravery, wisdom and vision of the head of the banking sector but also set an important recondition for the banking sector in the process of integration and sustainable development.