Tougher rule on foreign currency speculation

Tuesday, June 10, 2008
On June 5, the State Bank of Viet Nam announced the forex rate of 16,117 dong/US dollar but the black market (that is a market consisting of all commerce on which applicable taxes and/or regulations of trade are being avoided) recorded the forex rate being pushed to 18,400 dong per US dollar, higher 14% than SBV's level.

Last Friday the central bank also confirmed that the changes in forex rate of the informal market in some recent days were mainly for technological factor and speculation. Especially several foreign currency exchange agents of credit institutions in Hanoi and HCM City hiked the US dollar price to seek profit, causing damages for people.

Therefore, SBV announced it would combine with authorities to check and deal strictly with violations on the forex rate regulations and adjust the foreign currency exchange activities under current laws.

Accordingly, foreign currency exchange agents of credit institutions are only allowed to purchase US dollar cash from individuals and disallowed to sell US dollar to the customers. The whole collected US dollar volume must be sold to commercial banks.

In addition, foreign currency flows such as FDI, overseas remittance, foreign tourists are the large supply of US dollar to support the appreciation of the dong against the greenback. Thus, SBV said, the forex rate will continue to be monitored flexibly based on the market's supply and demand within the amplitude of+/-2% under the prime minister's direction.

Prior to such a move, the central bank had signalled forex stabilisation on May 27 when the forex rate reduced by some 800 dong on May 28 compared to all-time high level.

However, right after that the forex rate presented complicated movements with strong upward tendency of some 500-700 dong a US dollar. Particularly, on June 5, the forex rate announced by the central bank was 16,117 dong a US dollar while the rate in the free market was pushed to 18,400 dong a US dollar, rising by 14% against the announced rate.

Given explanation for the phenomenon, the Bidv chair Tran Bac Ha said that this showed not only the gap between supply and demand of US dollar in investments and official payments but also negative affects of rumours and speculations. So there is needed to have strong intervention.

According to Ha, the first reason causing the sudden change in dong/US dollar forex rate is the increasing foreign currency demand of importers mainly in fields of petroleum, steel, pharmaceuticals, luxury consumption goods that are not subject to be given priorities in banks' foreign currency supply strategy.

On the other hand, some foreign institutions released non-luminous assessments about Vietnamese economy in general and dong/US dollar exchange rate as well, so people and enterprises were urged to reserve US dollar despite of monetary market regulators' positive intervention.

SBV needs to have stronger intervention measures in supply of US dollar to commercial banks. With the current US dollar reserve, the central bank totally has enough ability to intervene the market, Ha confirmed. (TBKTVN)