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Where are the dollars?
After the state bank put downward pressure on the traditionally-high US dollar to Vietnam dong exchange rate, the American currency’s recent rise has seen US notes go into hiding in Vietnam.
Commercial banks are using their dollars sparingly.
Though they have raised the interest rate on dollar deposits up to 6 percent a year, many commercial banks still find themselves lacking US currency.
Although importers are willing to pay more than the official rate to get dollars, some banks do not have enough of the US currency to sell.
Other banks are waiting anxiously to buy dollars from the State Bank of Vietnam (SBV), but in a recent move to let the dollar rise against the dong, the central bank has been releasing fewer dollars into the market.
Meanwhile, importers and businesses are holding onto their greenbacks on renewed faith in the American economy – coupled with increasing import prices and higher demand for imported goods.
The general public has also been less willing to part with their dollars.
All the while, the central bank has assured the public that the dollar market is being stabilized.
Fickle banking
For the past month, the dong/dollar exchange rate has been capricious, to say the least.
In March, the central bank let the dong appreciate, hoping that a more expensive local currency would make imports cheaper and help curb soaring inflation.
The move prompted a general dollar dumping.
Dollars flooded the market, and many exporters who had dollars to sell bitterly exchanged them for as low as VND15,600 per dollar.
Export associations and other business groups then petitioned the government to instruct the central bank to buy the excessive dollars.
The government did as requested and the dollar market reversed a few weeks later.
But the turnaround was so sharp that a dollar shortage ensued.
The central bank was then prompted to sell dollars – around US$1.2 billion in April by its own account – to keep the greenback’s value down.
But SBV has stopped pumping so much US currency into the market and appears content to watch the dollar rise for now.
Up or down
Some say that an increasing supply of dollars from foreign investors over the next few months, plus a flatter rise in demand for imports, will create a downward pressure on the exchange rate.
According to experts, the record $11 billion trade deficit in the first four months of the year has prompted people to hold their dollars, pushing up the exchange rate recently.
Experts said the huge $29 billion in imports was due to huge steel, machine and equipment purchases this year, but they expected these orders to decrease over the next several months.
Others said the exchange rate also depends on the dollar, which depends on the upcoming American presidential election.
If the Democrats win, experts said the dollar would rebound, pushing up on the exchange rate.
Professor Tran Ngoc Tho from the Ho Chi Minh City University of Economics said that the dong is not likely to rise as much alongside a widening trade deficit as the central bank advises that dollars be used with caution.
Thanhnien
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