Several months ago, we reported about a troubling development in Vietnam, happy inflationary host of one of the world's most rapidly devaluing and best named currencies, that in direct refutation of Ben "Gold is not money, it is tradition" Bernanke's claim that gold is just a trinket one can fondle with no inherent value, the local banks had gone as far as paying the local residents a dividend to "store" their gold (recall all those charges against gold that it never, ever pays a dividend....). However, as we subsequently warned, any time a bank, and especially an entire banking sector, is willing to pay you paper "dividends" for your gold, run, because all this kind of (s)quid pro quo usually ends up as a confiscation ploy. Sure enough, as Dow Jones reports today, the gold, which did not belong to the banks and was merely being warehoused there (or so the fine print said), was promptly sold by these same institutions to generate cash proceeds and to boost liquidity reserves using other people's gold, obtained under false pretenses.
And now, it is time for the forced sellers to become forced buyers, as "the State Bank of Vietnam, the country's central bank, may allow local banks to buy up to 20 metric tons of gold over the next two months to improve their liquidity ahead of a ban soon on their use of gold as a means of boosting their operating capital." What they mean is that having been caught engaging in an illegal reserve boosting operating, the banks are now "allowed" to undo their transgressions ahead of a "ban" on what inherently was not a permitted practice. What is left unsaid, of course, is that any gold anywhere in the world, that is not in one's physical possession, and has been handed over to an insolvent bank (virtually all of them) for "safekeeping", is currently being sold, lent out, rehypothecated and otherwise traded with, in a way that any demand for full delivery will generally be met with silence, blank stares and phone calls going straight to voicemail.
From Dow Jones:
Banks have bought more than 60 tons of gold during the past six months and still need to buy more to meet their liquidity needs, Deputy Central Bank Governor Le Minh Hung said in the statement, posted on the central bank's website.
Local banks received gold deposits from the public in previous years and sold the gold in the local market for cash. Now they will have to buy gold to pay back their depositors at a time when global gold prices have been rising sharply. The central bank wants to prevent banks from this kind of risky operation, so it plans to ban banks soon from being involved in gold trading operations.
This is called being "caught with your pants down" while you are selling gold bricks...
"Demand for capital is usually strong in the fourth quarter. It's risky for the banking system if banks are forced to buy gold to meet their needs," Mr. Hung said.
The central bank will closely monitor and stabilize the domestic gold market and will soon ban banks from using gold as a way to boost their operating capital, he added.
This however begs the question: if the local banks can't fool the gullible public into handing over truly valuable assets in exchange for a "dividend" that is literally being created out of thin air, and then monetize said assets to appear solvent, just how will they appear solvent? Crickets...
Though the central bank's gold management policy is making retail gold prices in the local market higher than global prices, there has been no smuggling of gold and therefore no increased demand for the U.S. Dollar so far this year, Mr. Hung said, adding that this has helped keep the exchange rate between Vietnam's dong the U.S. Dollar stable so far.
In other words, not only is gold money, it is better than money. But first you need: i) inflation; ii) collapsing currency and iii) insolvent banks. Luckily, the developed world has neither of these...
In summary: this...