Twin fights loom on currency horizon

photo: sacombank

The remark came from a National Finance Surveillance Commission senior official on the popular usage of US dollars and gold.

“There are two issues relating to the foreign exchange market comprising exchange rate stabilisation and anti-dollarisation,” said the official.

The commission estimated that some $30 billion in kind of the greenback and more than $30 billion in kind of gold were circulated in Vietnam.

“It is essential to devise monetary policies to control dollarisation and goldisation,” the official said.

The commission’s proposed measures include increased foreign currency compulsory reserve rates, which must be higher than the compulsory reserves in dong, and forcing commercial banks to cut deposit interest rates and increase lending interest rates in foreign currency.

These measures will consequently drive local residents’ interest back to the Vietnamese currency.

The public and corporate community have been hoarding greenbacks instead of selling to local banks.

They fear the local currency will depreciate further. The difference of official and unofficial exchange rates has hit VND2,000 per dollar, a 10 per cent rise in recent months.

Nguyen Hoang Minh, deputy director of the State Bank branch in Ho Chi Minh City said dollar remittance to the city reached around $4 billion in 2010, a year-on-year increase of 30 per cent. However, most of the greenbacks are kept by residents, not by banks.

“Due to the narrow difference between official and black forex exchange in the second quarter of this year, local residents increased selling greenbacks to banks, accounting for around 25 per cent of the remittance,” Minh said.

“However, as the difference is large in the last quarter of 2010, the dollars sold to banks have made up only 10 per cent of the total remittance,” he said.

Vietnam’s dollar supplies are reportedly higher in 2010 than a year earlier, encouraging the country to implement stringent anti-dollarisation policies from 2011.

Remittances to Vietnam in 2010 are estimated at $8 billion, a year-on-year increase of 25.6 per cent.

The National Finance Surveillance Commission estimated net foreign indirect investment capital into Vietnam at around $1.3 billion and foreign direct investment capital disbursement at around $11 billion in 2010, representing a year-on-year increase of 10 per cent.

“Through threat test models on foreign exchange rate and Vietnam’s macroeconomy we formed, we realise that Vietnam is able to stabilise the foreign exchange rates until 2015. Therefore, we should strengthen anti-dollarisation activities right now,” said the National Finance Surveillance Commission official.