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SSC considers allowing foreign currencies in domestic transactions
The State Securities Commission (SSC) has suggested allowing foreign investors involved in IPOs to pay for shares in foreign currencies, which they think will help stimulate the stock market.
The solution was suggested after the SSC learnt that foreign investors are finding it difficult to convert their dollars into VND they need to make securities transactions, as required by Vietnamese law. Commercial banks now hold an excess of foreign currencies but are in the midst of a VND shortage.
The commission’s idea has been applauded by businesses and analysts. Nguyen Bang Tam, Deputy Chairman of the Association of Listed Companies, says the solution will enable foreign investors to make payment for shares directly in foreign currencies, which will then be transferred to companies or state’s treasury.
As such, foreign investors can bypass a step: they won’t have to convert their foreign currencies into VND. Meanwhile, the State will not have to spend VND to buy superfluous supplies of foreign currencies to stabilize the exchange rate. This will also help the Government curb inflation because VND will not be put into circulation.
However, as Vu Bang, Chairman of SSC, acknowledged, the suggested solution has raised concerns from state management agencies. Under the current laws, all transactions in the territory of Vietnam must be carried out in VND. Experts also fear that the solution will worsen the dollarization effect in Vietnam.
However, Mr. Tam does not think this a legitimate concern. He says that if Vietnam allows foreign investors to make payment in foreign currencies at the exchange rates set by the central bank, the foreign currencies will be isolated within the banking system, only being transferred from one bank to another, meaning they will be under the control of the State Bank of Vietnam.
Another use for the capital is enterprises importing goods and equipment for production purposes. They will be able to use the dollars foreign investors transfer to enterprises’ accounts to pay for orders.
Mr. Tam also says that if the Government allows payment in foreign currencies, this will help settle the VND capital shortage on the market. Moreover, this will also benefit enterprises that need foreign currencies because they won’t have to use banks to access them.
Regarding other measures to develop the stock market, Mr Tam said it is necessary that 100% foreign owned investment funds and securities companies be allowed to set up operations.
He also said his association is suggesting the Government allow the establishment of financial investment joint stock companies. Though there are many securities companies currently operational, Mr. Tam thinks the Government should encourage more, as these companies will help make investors become more professional.
In latest news, the stock market has negatively responded to the State Bank’s decision to issue VND20tril of compulsory promissory notes. Many investors have sold their stock and fled the market. Commenting on this, Mr. Tam said investors flee because they think the promissory note issuance will exhaust banks’ capital. In reality, VND20tril is actually quite small when compared to banks’ cumulative capital.
VNN
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