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SOVEREIGN MAN

They’ll actually pay you to store your gold

April 11, 2012
Hoi An, Vietnam

Hoi An 300x224 Theyll actually pay you to store your gold

Here’s something you don’t see every day: Banks in Vietnam will actually pay YOU to store your gold in one of their safe deposit boxes. I was pretty surprised to find this out for myself; neither Simon nor I have seen it anywhere else in the world except here.

This is actually how banking used to be. The original bankers were goldsmiths– big burly guys who worked with gold on a daily basis. They had the security systems already established, and, for a fee, they were willing to let you park your gold in their safes.

Eventually, goldsmiths got into the moneylending business; instead of charging a security fee, they would pay depositors a rate of interest for the right to loan out the gold at a higher rate of interest.

Goldsmiths’ reputations lived and died based on the quality of their loan portfolios, and their consistency of paying back depositor savings.

Today that’s all but a footnote in history. Except in Vietnam.

Vietnam’s economy enjoyed a strong boom in the mid-2000s thanks to economic liberalization and foreign capital inflows. Within a few years, the economy overheated and inflation became rampant.  Then came the global financial crisis.

The Vietnamese government’s response, as it has been with governments all over the world, was to print more money.  This further exacerbated the inflation problem and undermined confidence in the currency.

The unfortunately named Vietnamese dong has been devalued to the point where it now has an absurd number of zeros.  Over the past 3 years it has lost some 30% of its value against the US dollar– it now takes about 21,000 dong to buy just one US dollar.

Against stronger currencies such as the Aussie dollar and Canadian dollar, the dong has plunged even further.

As such, it comes as no surprise that the Vietnamese people don’t trust their government’s paper money.  They prefer to earn dollars and keep their savings in gold. Banks have jumped on board, encouraging gold deposits by offering attractive interest rates.

Property prices are frequently quoted in gold as well. It’s cultural– the average guy on the street is very aware of gold and probably knows the price.

The government doesn’t like this at all because it can’t print dollars or gold.  So, it is discouraging their use, forcing non-tourist business owners to exclusively use the dong.

The government has also introduced regulations to discourage gold hoarding.  Technically, it’s not permissible now for Vietnamese banks to pay interest on gold deposits anymore, but it still happens in practice.

So much for Warren Buffet’s assertion that gold is just a silly cube that doesn’t pay any yield.

It’s ironic that places like Vietnam are considered poor, backward, and undeveloped by the West… and yet it’s precisely these same people who are smart enough to culturally reject worthless government-issued paper currency in favor of something that is naturally scarce and lacks counterparty risk.

We should all be so wise…

Until next time,

Tim Staermose, Chief Investment Strategist
Sovereign Man

About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

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Comments on this entry are closed.

  • Benjamin Dunphy

    “Banks have jumped on board, encouraging gold deposits by offering attractive interest rates.”
    Interest denominated in what? There’s little incentive to earn interest on my gold if that very interest has its purchasing power threatened by inflation. 

    But good point about the people recognizing the worthlessness of their currency.

    • http://www.facebook.com/profile.php?id=100002185285742 Keith Carter

      Well they still need there currency for local businesses so i would think it would the dong.  just a thought though

    • Amber

       everyone knew the worthlessness of the currency, but cannot do anything

  • Jim Carver

    Tim, where do you & Simon recommend storing gold safely offshore, and how do we safely get it there?  Thanks

    • Sefton Hanley

      Depends on what kind of amounts.. Via Matt are our preferred solution but may not work for smaller depositors. Try discussing it with Declan at gold made simple.

      • Jim Carver

        How do I reach Declan?  I appreciate the referral.

  • silvercat

    I like the idea of that, but having spent alot of time in Vietnam and doing business there, I had a very good lauph at this article.  If you want to loose your gold you should do this!  Too funny!

  • Huesunset

    Hey Tim, if you r still in hoi an, head up to da nang, visit my restaurant and bar called red sky, i’ll show u around town, later, derryck

  • Teejay

    The state bank of india also accepts gold deposits. In fact they will also pay you interest in gold in certain cases. You can find more info on their website

  • John

    Ha..when something sounds too good to be true:it is! When you ask for your gold back a couple years later, you get titanium bars with gold paint.

  • np

    They are nationalizing Saigon Jewellery which supplies 90% of their gold, forcing new regulations that’ll put other gold dealers out of business, and will prohibit people from using gold as money (settling debts, business transactions) even if they are still allowed to own it.  Since they know outright confiscation would likely trigger a revolt, they’re essentially trying to regulate it out of the market and force people back onto the dong.

    I think they should stick a big middle finger to the government.  Of
    course, this would require convincing the police that it’s in their
    interest too.  They still have until May 25 when the “7 solutions” take effect and I predict the wealthy getting their gold out of the country as fast as possible and lots of hoarding for the rest of the folks.. which would be all for naught if the government decides to start cracking skulls (hence the need to convince the police)

    So while this article shows how people elsewhere are smart
    enough to recognize a difference between hard money and fiat currency, it also highlights the nature of the state, and
    serves as a warning in choosing your next destination wisely

  • MaxS

    So you can put your gold in a Vietnamese bank and get money for storing it there. But wait the catch is it’ll take 21,000 of their dong to equal a single us dollar; Lol. Interesting post none the less. Who knows we might be On the same boat , hoarding our gold soon if our currency continues to devalue.

  • Hiday_happy

    good article..this article will help poor people to enrich their life..but not all of them to think like me

  • Bob

    Have a look at these three charts Gold, Silver, USD. 
    http://escapetophilippines.wordpress.com/us-dollar-and-gold-analysis/ It will blow you away!!! 

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