Foreign currency market contracting old disease
On the black market, the VND/US$ exchange rate was at VND 17,350-17,420/USD $1.00 on November 22, higher than the rate last week. Meanwhile, the exchange rate on the official market remained below VND 17,000/US $1.00. The big gap between the official rate and the rate on the black market has caused difficulties for banks to provide foreign currencies.
The General Director of a joint-stock bank admitted that the foreign currency supplies to banks has been decreasing, which has made it difficult for banks to satisfy the foreign currency demand from clients. The general director said that exports have decreased over the past three months due to the global financial crisis, while imports remain big, which has resulted in the foreign currency supply-demand imbalance.
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The general director said that the foreign currency supply-demand imbalance is not as serious as it was in mid-2008, when the dollar price surged to VND 19,000/US $1.00. However, there have been signs showing that the ‘old disease’ of the foreign currency is relapsing. The exchange rate on the black market is staying consistent at high levels, showing the high demand for foreign currencies. It is because of the high demand for foreign currencies for importing commodities, but also because people are pushing up purchasing dollars to hoard after they see the dollar price increase.
Analysts said that a lot of people have shifted to making deposits in dollars instead of VND as they fear the local currency will devalue even further.
Statistics show that deposits in foreign currencies have been increasing more rapidly than VND deposits. In October 2008, the VND deposits increased by only 2.16% over the previous month, while the foreign currency deposits increased by 3.18%. In November 2008, the mobilized capital in foreign currencies in HCM City increased by 41.8% when compared to the same period of last year, while the VND mobilized capital increased by only 19%.
Banking experts said that the greenback price increases stopped on the weekend, which they see as a good thing. They said that it was bad to allow the dollar price to increase sharply by VND300/US$1 in November.
The experts said that the State Bank should be cautious with its actions to adjust the exchange rate to support export, as the sharp change of the exchange rate will prompt people to speculate dollars. The same thing once occurred in mid-2008, when the dollar price skyrocketed, people rushed to buy dollars, and export companies, which have dollars, refused to sell dollars to banks.
At recent forums, experts said that it is necessary to keep the VND/US$ exchange rate at around VND 17,000/US$1, which proves to be high enough to benefit to exporters, and low enough for importers to bear.
