Goldenization and dollarization put under control in Vietnam

The prevention of dollarization and goldenization (or reversion-to-gold) has yielded initial outcomes in the Vietnamese market.

As of 2011, the Vietnamese economy had around USD120 billion. Experts estimated that up to 300-400 tons of gold worth of around USD 15-20 billion were not put into investment, production and business.

The public gold and foreign currency blockage amounted to 30-40% of GDP and was equivalent to the total social investment every year. The problem of goldenization and dollarization is unfortunate for socio-economic growth and causes negative impacts on the economy.

In Vietnam, gold and foreign currencies have been used as payment tools, leading to complications in currency policy management.

Gold prices increased by 9.1 times in the 2001-2010 period, a 3.5-fold rise against the growing CPI. High gold prices posed psychological pressure on inflation expectation.

Accordingly, the Government issued Decree 24 on the gold market management and Decree 95 on gold and foreign exchange trading.

Initial outcomes

The inflow of foreign currency to Vietnam increased relatively, including USD10-11 billion of overseas remittances; USD9 billion of FDI disbursement and USD6.5 billion to be predicted to come from international tourism, for 2012.

So far, the banking system has bought 60 tons of gold equal to USD3 billion, serving to reduce goldenization and mobilize capital for the economy.

After ten months, even though gold prices surged by 2%, people did not rush to buy gold. The import of precious stone and jewelries decreased sharply against previous years.

The exchange rate dropped by 0.88% on average in the first ten months, showing a rare sign over the last five years. The State Bank of Vietnam bought USD10 billion in foreign reserve.

These outcomes contributed to improving liquidity and reducing pressure on inflation expectations.

However, there are some problems in the domestic and foreign currency markets including the gap between domestic and global gold prices, weak linkages between the domestic and global gold markets and the enactment of regulations on gold bar production.

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