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Iron hand to rescue beat forex market
The distortion on the foreign exchange market may soon be over, with the authority’s toughest measures working to take the exchange out of its current dead-end path.
A State Bank source said the authority was considering asking the government to set a rate at which local economic organisations had to sell their foreign currency to local banks. “This is the best action we can expect for now,” said Nguyen Thanh Toai, Asia Commercial Bank (ACB)’s deputy general director.
Since late 2008, local enterprises, especially exporters, have preferred to keep their greenback revenues under dollar deposit accounts, rather than selling to commercial banks. Without this source, local lenders have been seeing dollar shortages and failing to meet dollar-buying demand from local importers.
“Exporters hoard dollars under deposit accounts, cutting the dollar supply to importers. No one wants to borrow greenbacks. This is a market distortion with an affected dollar shortage,” said Dao Hong Chau, Eximbank’s deputy general director.
The State Bank’s Ho Chi Minh City branch reported that total greenback deposits in the city’s commercial banks alone were around $9 billion. The Bank for Investment and Development of Vietnam (BIDV)’s treasury department vice head, Vo Thi Sanh, estimated the figure for the whole banking system might be less than $15 billion. BIDV alone contributed $2.5 billion to that estimated figure.
“Before 2008, dollar deposits in our bank were only around $1 billion. With the wide exchange rate fluctuation in 2008, the figure was just $1.5 billion. Now the $2.5 billion figure so far in 2009 demonstrates a sky-rocketing increase,” said Sanh.
In March, in a move to encourage exporters to sell out their dollar holdings, the State Bank widened the exchange rate trading band to 5 per cent from 3 per cent, allowing the dong to depreciate 2 per cent amidst the market dollar shortage. However, that move proved inadequate in luring exporters to sell.
“The dollar shortage has not yet improved since the exchange rate trading band was widened,” said an official from the Bank for Foreign Trade of Vietnam (Vietcombank)’s foreign exchange department.
Vietnam Banking Association general secretary Duong Thu Huong said that only by applying a compulsory rate could force dollar hoarders to sell out, and these supplies would consequently balance the market.
Under the impact of the regional financial crisis, Vietnam introduced temporary obligations to surrender foreign exchanges in 1998, aiming to concentrate foreign currency in the banking system.
The country has since relaxed this surrender requirement, as the economic situation has improved. The requirement was reduced from 80 per cent to 50 per cent in 1999, 40 per cent in early 2001, 30 per cent in May 2002 and was set at 0 per cent pursuant to the Prime Minister’s Decision No. 46/2003/QD-TTg in early 2003.
VietNamNet, VIR
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