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Businesses face losses due to payment in dollars
The Vietnamese legal system regulates that the domestic currency (VND) is to be used in all transactions, but that several businesses representing foreign parent companies have recently been asking for payments in US dollars (US$) is a violation of Vietnamese law.
Recently several Vietnamese businesses working as agents for foreign maritime transport companies have asked domestic export businesses to pay transport fees and other surcharges in US$ based on the exchange rate on the black market. They said they have had to apply the measure to avoid losses due to the fluctuations in the exchange rate between US$ and VND.
Payment in dollars is illegal
In an interview granted to VOVNews, Cao Si Kiem from the National Monetary Consultancy Council said that when side A and side B agree in principle to pay in VND at the time of signing the deal, they have to stick to the signed provisions. If one party violates the terms, the other party can ask for damages under the economic court’s ruling.
Under a circular issued by the Ministry of Finance in 1998, foreign-invested businesses are allowed to convert VND into foreign currencies based on the inter-bank exchange rate announced by the State Bank of Vietnam only when they receive an approval from the ministry.
However, many agents have adjusted payment provisions in their contracts themselves by using US$ instead of VND to incur losses due to the sharp fluctuations in the exchange rate.
“Such unilateral adjustments run counter to Vietnamese law, unless the case is brought to the economic court or a compromise is reached by both parties,” said Mr Kiem.
There is growing concern that if businesses prefer US$ to VND in payments and try by every means to pay in US$, the national economy will be dollarised.
The Vietnamese legal system regulates that VND is used in all transactions. Only several foreign currencies are allowed to be circulated if given the green light by the State Bank or in the form of a contract.
According to Mr Kiem, all countries have their own policies for circulating their domestic currencies. All foreign currencies are converted into the domestic currency when flowing into a country. In several cases, US$ is accepted in payments, but the concerned parties have to abide by the regulations issued by the central bank.
In Vietnam when the domestic currency is not used in every transaction, the State allows several sectors to use US$ instead.
Exchange rate policy needs to be more flexible
Currently, almost all maritime transport agents are encountering difficulties with payments due to fluctuations in the exchange rate between US$ and VND. Due to high transport costs, their foreign parent companies have asked domestic export businesses to pay in US$. These businesses have no choice but to buy US$ from commercial banks based on the inter-bank exchange rate announced by the State Bank of Vietnam. Ironically, commercial banks do not have US$ to sell and these businesses have to buy US$ on the black market at a higher prices to pay off contracts.
A representative of a maritime transport agent in the south proposed that the State Bank adopt a flexible policy on exchange rates close to that on the black market to ease the burden on businesses. He said that these Vietnamese agents enjoy 3 percent of total revenue they pay to their parent companies and they will face substantial losses if the exchange rate exceeds the 3-percent band.
However, Mr Kiem affirmed that Vietnam’s policy on the exchange rate is flexible and that the rate is very close to that on the free market. In his opinion, all foreign currencies should be converted into VND for all transactions. If any businesses have VND available, they should change it into US$ immediately at the rate set by the State Bank.
“It is the duty of commercial banks, State Banks and foreign exchange rate bureaux,” said Mr Kiem.
VOV
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