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Dong shrinks on new forex position rules
The Vietnamese dong weakened against the US dollar yesterday due to new rules on the foreign currency positions of banks issued by the State Bank of Viet Nam and a resulting increase in demand for the greenback. The change ended 30 days of stability in foreign exchange rates.
Although the interbank exchange rate remained unchanged yesterday at VND20,828 per US dollar, with a ceiling rate of VND21,036, rates posted by commercial banks and on black market rose by VND20-60 per dollar.
Vietcombank yesterday posted US dollar buy/sell rates of VND20,850/VND20,950, up from VND20,830/VND20,890 on Wednesday. Eximbank and Asia Commercial Bank listed rates at VND20,830/VND20,900, up from VND20,810/VND20,890 the previous day.
On the street, the US dollar was trading at VND20,860/VND20,880, VND20/VND30 higher than on Wednesday.
On Tuesday, the State Bank of Viet Nam issued Circular No 07/2012/TT-NHNN governing the foreign currency positions of credit institutions licensed to engage in forex operations, including branches of foreign banks.
Under the circular, effective May 2, the foreign currency position of credit institutions may not exceed 20 per cent of their charter capital, down from the existing 30 per cent.
Banks seeking additional supplies of US dollars in order to meet the new requirements is being blamed for the strengthening of the US dollar this week.
In recent months, the existing limit on positions of 30 per cent of a bank's charter capital was blamed for encouraging banks to convert their foreign currencies to Vietnamese dong to receive higher interest rates when depositing in other banks. These operations dumped a significant supply of foreign currency on the market. The new quota will ensure a tighter supply of dollars on the market.
The foreign currency position limit will be calculated by the ratio of the total positive or negative foreign currency position over the credit institution's registered capital. For instance, if a bank has charter capital of US$25 million, the bank will be allowed to maintain a foreign currency position of up to $5 million, either positive or negative, at the end of the working day.Banks will be required to report their positions to the State Bank's foreign exchange department by 2pm the following day.
The circular replace State Bank Decision No 1081/2002/QD-NHNN and Decision No 1168/2003/QD-NHNN.
At the beginning of the year, State Bank Governor Nguyen Van Binh said that without any unexpected external shocks, the central bank would be able to maintain a stable foreign exchange rate, with currency devaluation during the year of no less than 3 per cent.
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