In policy discussions regarding the gold market in Vietnam, “reducing the goldization of the economy” is consistently regarded as a central objective throughout various phases of governance. Goldization not only undermines the national currency’s role as a store of value but also limits the effectiveness of monetary policy transmission, increases the tendency to accumulate non-productive assets, and exerts constant pressure on exchange rates and foreign reserves.

Prof. Dr. Tran Tho Dat – Chairman of the Scientific and Training Council, National Economics University

Therefore, every adjustment in gold management policy is closely linked to the goal of macroeconomic stability.

In this context, the proposal to establish a National Gold Exchange is often anticipated as a new, more modern tool to fundamentally address the issue of goldization. Many opinions suggest that when the gold market is organized transparently, with official reference prices and a centralized trading mechanism, the motives for speculation and hoarding will diminish, thereby contributing to weakening the role of gold in the economy. However, from a policy analysis perspective, the question needs to be posed more cautiously: does the Gold Exchange truly help reduce goldization, or does it merely change the form of its manifestation in another way?

“Goldization” in our country’s context needs to be considered from a multi-layered perspective

A common understanding in current policy discussions is equating goldization with the public holding large amounts of gold. In reality, goldization is a multidimensional and structural phenomenon, manifesting at least at three different levels in our economy.

Firstly, goldization in the savings behavior of the residential sector

At this level, gold is considered a preferred store of value compared to the dong, especially during periods of high inflation, economic instability, or when confidence in other financial channels diminishes. This behavior does not simply stem from a “preference for gold” mentality but reflects a risk-averse choice by the public in response to macroeconomic uncertainties. Therefore, goldization at the savings level is closely tied to the issue of confidence in monetary stability, which cannot be resolved through purely technical measures such as establishing a Gold Exchange.

Secondly, goldization in transactions and valuation

For a long time, gold was used as a reference unit for large transactions, particularly in real estate and asset accumulation. Although this phenomenon has significantly decreased thanks to administrative measures and macroeconomic stability, its traces still exist in the valuation mindset and expectations of a segment of the population. This is a form of “informal institutional” goldization, difficult to measure but with pervasive effects on economic behavior.

Tuesday, Gold Monetization in the Financial System

This represents the highest level of risk, where gold becomes a component of a bank’s balance sheet through gold mobilization and lending. The period before 2012 clearly demonstrated the risks of this form of gold monetization, as fluctuations in gold prices could quickly translate into liquidity risks and systemic imbalances. Decree 24/2012 effectively addressed this level by removing gold from banking credit activities.

However, it is important to note that successfully addressing gold monetization within the banking system does not mean that gold monetization has ended. Gold monetization in the savings behavior of the populace persists, reflecting deeper factors related to inflation expectations, the relative attractiveness of the Vietnamese dong, and the effectiveness of alternative investment channels.

Gold Exchange: A Tool to Reduce Gold Monetization or a Channel to Legitimize Gold’s Role?

Proponents of establishing a Gold Exchange often emphasize the positive role of the exchange in market transparency. According to this argument, when gold is traded on a centralized exchange, prices more accurately reflect supply-demand relationships, the price gap between domestic and international markets narrows, speculative motives for arbitrage decrease, thereby weakening the incentive to hoard gold. From this perspective, the Gold Exchange is expected to serve as a tool to “sanitize” the market, helping gold operate according to economic logic rather than being driven by crowd psychology and rumors.

However, a more cautious approach suggests that the Gold Exchange not only has the effect of “reducing distortions,” but also has the potential to “elevate the institutional status” of gold. When gold is traded publicly, with official reference prices, modern payment and custody infrastructure, and the participation of large organizations, gold may become more “legitimate” in the eyes of the public. In the context where other investment channels (stocks, bonds, real estate) remain risky or unstable, this could inadvertently reinforce gold’s role as a preferred asset.

In other words, the Gold Exchange may both reduce certain forms of gold monetization and create conditions for other forms to exist in new ways. Therefore, the impact of the Gold Exchange on gold monetization is not automatic but depends critically on the design model, scope of operations, and accompanying policy communication strategies.

Does the Experience of SGE Reduce Gold Monetization?

China’s experience with the Shanghai Gold Exchange (SGE) is often viewed as a successful model. However, it is essential to understand the true nature of this model. China did not establish the SGE with the goal of “eliminating gold monetization,” but rather to transform the way gold exists in the economy, from dispersed, difficult-to-control hoarding to centralized, transparent trading under state supervision.

Through the SGE, the Chinese government gains insight into gold flows, controls import supply, and uses gold as part of its national asset management and foreign exchange reserve strategy. More importantly, China does not allow gold to revert to a quasi-monetary role in payments or credit. The Renminbi remains central in the financial system, supported by inflation control, economic growth, and sufficiently attractive alternative investment channels.

This reality highlights a crucial point that the SGE does not reduce gold monetization in the sense of eliminating gold’s role, but rather reduces the destabilizing nature of gold monetization. This implies that a Gold Exchange is a necessary condition, but not a sufficient condition, to achieve the goal of reducing gold monetization.

Conditions for the Gold Exchange to Contribute to Reducing Gold Monetization in Vietnam

Drawing from both domestic and international experiences, several key conditions can be identified to ensure that if a Gold Exchange is established, it does not exacerbate gold hoarding but rather supports the goal of reducing it.

Firstly, clearly distinguish between gold and monetary functions: Gold on the Exchange must be definitively identified as a commodity or an investment asset, not as a means of payment or a unit of account in economic transactions. Any indication that allows gold to revert to a “quasi-monetary” role contradicts the goal of reducing gold hoarding.

Secondly, reasonably control the scope of individual participation: If individuals can trade directly, easily, and with high leverage, the Gold Exchange could become an attractive speculative channel, diverting funds from the banking system. Conversely, a model that prioritizes intermediary organizations, limits leverage, and controls transaction sizes can help mitigate psychological impacts and speculation.

Thirdly, link the Gold Exchange with a stable monetary environment and effective alternative investment channels: It is unrealistic to expect people to abandon gold hoarding if inflation is high, real interest rates are negative, or the capital market is underdeveloped. Under such conditions, even a well-designed Gold Exchange is unlikely to change saving behaviors.

The Gold Exchange and Macroeconomic Stability

One important consideration is that the Gold Exchange is not a “panacea” for gold hoarding. Gold hoarding is a structural phenomenon, reflecting the quality of macroeconomic management, the level of monetary stability, and public confidence in the financial system. Expecting that simply establishing a Gold Exchange will lead people to switch from holding gold to holding VND or investing in production is unrealistic. Conversely, if the Gold Exchange is part of a comprehensive strategy to control inflation, strengthen confidence in the VND, and develop the capital market, it can play a supportive role, helping to “release” gold from passive hoarding and bring it into a more transparent management framework.

In summary, the question “Does the Gold Exchange help reduce economic gold hoarding?” does not have a simple “yes” or “no” answer. The Gold Exchange, by itself, does not reduce gold hoarding, but it does not necessarily increase it if designed and operated correctly. The crucial issue lies in the overall management strategy in which the Gold Exchange is placed, with its objectives, limits, and roadmap. For our country, the Gold Exchange should be considered a supportive tool within the policy toolkit, not a substitute for macroeconomic stability and financial reform. If designed in a focused, controlled manner and closely linked to a long-term gold hoarding reduction roadmap, the Gold Exchange can contribute to making the gold market more transparent and orderly, thereby supporting the goal of sustainably reducing gold hoarding.

Source: CafeF