People returning to dollars, but don’t expect fat profit!

Monday, May 12, 2008
People and businesses are now preparing for the scenario of the dollar appreciating, again.

The greenback is showing signs of recovery after it fell sharply in the last one year. If it revaluates again as many investors expect, this would help change the face of the world’s economy, affect Viet Nam’s economy and dollar holders.
Waiting for US to raise US$ interest rates

In order to prevent the US economy from slumping into a recession, the US FED in the last one year several times reduced the US$ basic interest rate from 5.25% to 2%, and applied a series of measures to restore investors’ confidence in the US financial market.

The measures have brought about satisfactory results. Low interest rates have helped enterprises reduce production costs and stimulated the economy towards recovery. The retail sector, labour market and especially the stock market have had active responses to FED’s solutions. Investment capital flows are coming back to the US. FED thinks that the economy will show signs of recovery in the second half of 2008 and regain the growth impetus in early 2009.

In the world’s market, the exchange rates of the dollar and other currencies are also reflecting optimism about the dollar’s revaluation. The EUR/US$ exchange rate has fallen from US$1.6/EUR1 to $1.535/EUR1, while the £/US$ has fallen from US$2.01/£1 from US$1.95/£1.

With the current interest rate of 2%, it seems that FED has nearly reached its goal of stimulating the economy. However, the world is now expecting FED to raise the interest rate with the US economy showing signs of recovery and facing inflation.

Want dollars? Don’t expect fat profit

Banking experts say that if the greenback appreciates again, other currencies will devaluate. However, the devaluation levels would still depend on the monetary policies of countries.

In Viet Nam, the dollar’s revaluation means the devaluation of the VND, which benefits exporters. However, experts believe that sharp price increases won’t occur as the State Bank of Viet Nam always keeps control over the VND/US$ exchange rate.

According to Eximbank, the demand for US$ in cash is increasing these days as people are rushing to buy dollars in anticipation of the dollar’s appreciation. However, US$ deposits are not increasing as expected. At Eximbank, deposits have even decreased by $1-2mil some days.

Bankers say that as businesses find it hard to buy dollars from banks, they are buying dollars from the black market to make payments on imports. However, the dollar purchases of the businesses have not been big enough to cause the market to tense up. The State Bank is still purchasing dollars to ease the demand-supply tension, but just in dribs and drabs.

Vu Thi Vang, Deputy Chairwoman of East Asia Bank, said that the tendency of keeping dollars has returned. However, Vang does not think that the US$ price will increase sharply as the State will take action to stabilise the price.

The Deputy General Director of an investment fund said that people are tending to keep dollars instead of gold because they fear gold prices will fluctuate, while they firmly believe in the dollar’s stable upturn. There are two factors that support the dollar’s revaluation: the dollar price increases in the world’s market, and the big trade deficit, which will prompt the central bank to follow the weak-VND policy to encourage exports.

In fact, keeping dollars proves to be the safest way to keep money as the exchange rate seems to be insured by the central bank. However, experts say that dollar holders should not expect to get fat profit.(Tuoi tre)