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Banks still lacking foreign currencies   2009-01-07 - TBKTSG, Saigon tiep thi

Though the liquidity of commercial banks has improved since the State Bank of Vietnam raised the interbank exchange rate by 3% on December 25, 2008, banks are still complaining that the demand for US dollars is greater than the supply.


According to the director of a transaction office under the Bank for Investment and Development of Vietnam, the supply of foreign currency remains tight as banks cannot purchase dollars from export companies. He added that the bank now still mainly relies on the purchases from the State Bank of Vietnam.


The director said that his bank is now actively looking for clients, i.e. export companies, to lend capital to them at the soft interest rate of 10% and get the right to purchase dollars from them in return.

The deputy general director of a small joint-stock bank said that his bank is still lacking dollars, adding that export companies only sell some of the dollars they get from export deals to the bank, while the companies still keep dollars in their coffers in anticipation of dollar price increases. Meanwhile, he added that he cannot purchase dollars on the interbank market.

There are signs that show an imbalance in foreign currency supply and demand, and the clearest is that banks are all quoting sale prices at the ceiling exchange rates, while the rates on the black market are higher than the bank-offered rates.


Eximbank, one of the biggest foreign currency trading banks in Vietnam, has been quoting the sale prices at the ceiling levels since the end of December 2008.


The price of the dollar remains high on the black market. At exchange shops in district 1, HCM City, purchase prices are hovering around VND17,450-17,480/US$1, while sale prices VND17,530-17,550/US$1.


Even experts wouldn’t bet on how high the VND/US$ exchange rate could go in 2009.


The VND has lost 10% of its value since the beginning of 2008. The overly high trade deficit in mid months of 2008, which put pressure on the exchange rate, led to worries about payment capability. The central bank then had to declare the figure about the foreign currency reserves at $20.7bil, the level which had been considered more than enough to ensure payment capability.


The exchange rate soared to VND17,400-17,500/US$1 at the end of 2008.


Economists have pointed out that there are many factors that will put pressure on the local currency in 2009.


The foreign currency supply now comes from the main sources as follows: exports, ODA (official development assistance), FDI (foreign direct investment) and overseas remittance.


Export turnover is in danger of decreasing due to the decrease in orders from foreign partners. FDI disbursement may also decrease due to the global economic recession.


However, the economists have also pointed out that there is the pressure that forces the greenback to devaluate against other foreign currencies.


The main factor that may devaluate the greenback in 2009 is the weakening US economy. US President-elect Obama said that the US might have to pump $800-1,200bil to help the US economy recover. This would promote factors that cause inflation, which would cause the greenback to revaluate against other currencies.


As such, the mixed factors will put the VND/US$ exchange rate in unclear position: while there are factors that may devaluate VND against US dollar, there are also the factors that may devaluate the US dollar against other currencies.

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