Vietnam Currency Discussion Board

[RICK C]

Banking & Finance

Banks can sell dollars for less; surplus unaffected

VNECONOMY updated: 27/12/2007

The State Bank of Vietnam (SBV)’s decision to widen the VND/US$ exchange rate limit is applauded by commercial banks. However, experts say the move is a short-term bonus that doesn’t solve the long-term problem – the superfluous dollar.

On December 24, the Governor of SBV decided to expand the VND/US$ exchange rate margin to +/-0.75% from +/-0.5% (the exchange rates applied by commercial banks can be 0.75% higher or lower than the central bank’s daily rate announcement).

The decision was made after the central bank was criticized heavily for idly watching as commercial banks suffered the consequences of the dollar excess. Over the last several months, regulations restricted commercial banks from quoting the dollar below 0.5% of the price announced by the SBV.

On December 25, one day after the central bank’s decision was issued, exchange rates offered by Eximbank were VND16,018/US$1, VND16,030/US$1 and VND16,040/US$1 for purchasing dollars in cash, purchasing via bank account and selling dollars, respectively.

Meanwhile, Vietcombank’s purchase price was VND16,035/US$1 on December 15, and VND16,000/US$1 on December 25.

Deputy General Director of a joint stock bank said the central bank’s decision will help ease the burden on commercial banks and allow them to be more flexible in their business. However, the decision will not solve the greater problem of the dollar overload.

While the dollar supply remains profuse, the demand for dollars remains low, despite any slight recent increase, he said, adding that the dollar can only recover its strength if the central bank buys dollars for VND as it did in the first seven months of the year.

Regardless of effectiveness, the central bank’s decision has been applauded by commercial banks that are happy to see any sign of activity.

Though the central bank is criticized for not intervening, experts are saying the state bank is afraid of taking responsibility for inflation if it spends more VND to buy dollars.

Source: VIR