Thomson Reuters



HANOI, Oct 7 (Reuters) - Vietnam's central bank said on
Thursday it might allow companies to import gold if domestic
prices got "unreasonably high". [ID:nSGE696038]

Here are some questions and answers about gold in Vietnam
and the ban on imports.

HOW ARE VIETNAM'S GOLD IMPORTS REGULATED?

Vietnam imports 95 percent of the gold it consumes and
these imports are regulated by the State Bank of Vietnam. Gold
businesses wanting to import the metal have to ask the central
bank for a licence and quota. At times when the central bank is
not granting licences, the official channel for imports is cut.

WHY ARE GOLD IMPORTS SO TIGHTLY REGULATED?

The central bank stopped granting gold import licences in
May 2008 in a move to contain the trade deficit, cool
inflationary pressure and support efforts to stabilise the
economy. The trade deficit had hit a record high of $11.1
billion in the period from January to April 2008 and in April
annual inflation had hit 21 percent.

The central bank has since eased the ban several times with
limited quotas, letting businesses import as domestic prices
have surged.

WHAT'S THE LINK BETWEEN GOLD AND THE DONG?

When a gap develops between gold prices onshore and those
on the world market, speculators rush to buy dollars to smuggle
gold in, which puts downward pressure on the dong .

Surging gold prices make dong savings less attractive,
which drives people to convert dong deposits into gold. This
may intensify inflationary pressures.

In addition, Vietnamese tend to price property in gold.
Higher gold prices push property prices up, which ultimately
raises the prices of other goods.

In Vietnam's immature markets, an increase in the gold
price tends to raise expectations of yet more increases, the
flip side of which is more downward pressure on the dong.

WHAT HAS BEEN THE EFFECT OF THE GOLD BAN?

The gold import ban has allowed the central bank to
restrict the amount of foreign exchange used for imports, but
it has created a scarcity, or at least the perception of it,
which has pushed domestic prices higher than world prices.

That creates arbitrage opportunities for gold smugglers and
hurts the currency. In addition, gold businesses have
complained that the limited supply of raw material is causing
problems and hurting firms that make jewellery for export.

WHY IS GOLD SO POPULAR IN VIETNAM?

Vietnam is one of the world's leading gold importers, with
91 tonnes in 2006, 51 tonnes in 2007, and 90.5 tonnes in 2008,
the central bank has said. The Vietnam Gold Business
Association says Vietnamese may be holding 500 tonnes.

Vietnamese people, no strangers to hyperinflation and
instability over the years, have a long-standing tradition of
keeping gold as a reserve.

Gold is also a common gift for weddings in the country of
86 million people. The chronic loss of value in the dong has
strengthened perceptions that gold is a safe haven together
with U.S. dollars.

Vietnamese hold more gold per dollar of income than anyone
else in the world, underlining the lack of confidence in the
local currency, the Asian Development Bank says.
(Reporting by Ngo Thi Ngoc Chau; Editing by John Ruwitch and
Alan Raybould)