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Vietnam tries to ease dollar influences
Policy makers and experts are applying measures to reduce the influence of the dollar on the national economy.
Speaking at a Government’s conference held in late 2010, Governor of the State Bank of Vietnam Nguyen Van Giau said that the central bank is considering encouraging the payment in non-dollar foreign currencies (Euro, Japanese yen and Chinese yuan) for import goods.
Experts say that the central bank aims thus to ease the pressure on the dong/dollar exchange rate and reduce the influence of the dollar on the national economy.
In fact, this is not the first time the diversification of foreign currencies in paying for imports is mentioned. The issue has been discussed many times among experts and raised much controversy.
Commercial banks criticize businesses for ignoring the services that help minimize risks in case of the exchange rate fluctuations. Meanwhile, businesses argue that in many cases, payments in other currencies were not accepted by the foreign partners. Besides, they also say that there are many other problems that prevent them from using banks’ services.
Regarding the plan to readuce the dollar influence on the national economy, Dr. Le Xuan Nghia, Deputy Chair of the National Finance Supervision also provides some noteworthy information.
Nghia says that after a lot of discussions, the National Advisory Council for Monetary Policies decided to submit to the Government the plan on fighting against the dollarization. International experts have also given advice on the issue.
Commenting on the plan, Nghia said that the plan includes the measures which, if implemented, will have a strong impact on the market.
For example, the first step of the plan is trying to restrict the loans in foreign currencies, or only allowing loans in foreign currencies in certain branches. In order to do that, it would be necessary to adjust the required compulsory reserve ratio on foreign currency deposits. The move will have indirect impact on the foreign currency interest rates.
The second step mentioned in the plan is that the Government needs to restrict the subjects to foreign currency loans and to stop lending in foreign currencies, though banks will continue accepting deposits in foreign currencies.
The third move is that commercial banks will restrict the deposits in foreign currencies and eventually stop accepting deposits in foreign currencies.
“This is the way to completely eliminate the dollarization which has been present in Vietnam for a long time,” Nghia said. And once the dollarization is eliminated, there will be only one forex market, where people, who have foreign currencies, can sell them, and those who need foreign currencies, can purchase them. the central bank will act as the final buyer and seller, who can intervene to stabilize the market and balance the supply and demand.
“This is the method that many countries applied. If the plan succeeds, the payment in many currencies will become possible,” Nghia said.
However, Nghia has admitted that this is a huge project which will take many years to implement. And the best time is when the inflation rate is low and the Vietnam dong becomes more “prestigious” among the public.
While policy makers are busy discussing how to restrict foreign currency loans and deposits, commercial banks have been trying to raise the dollar deposit interest rates in order to mobilize more dollar capital.
Western Bank, for the second time in the last 10 days, has raised the dollar interest rate by 0.2-0.4 percent per annum. The previous highest interest rate of 5.3 percent has been replaced with 5.5 percent.
The highest interest rate now is being offered by Nam Viet Bank, at 6.24 percent per annum. All banks are rushing to raise interest rates, thus heating up the market.
vietnamnet
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