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Banks call for shift away from US dollar   2009-07-27 - Agencies

 
 
A teller counts Australian dollar notes at a bank in Ho Chi Minh City  
Banks short on US dollars have advised importers to pay for goods in foreign currencies other than the dollar as a greenback shortage puts pressure on the forex market.

 

A forex manager at a foreign bank in Vietnam, who wished to be unnamed, said importers without enough US dollars to pay for goods should just switch to other currencies.

Unlike the US currency, others are not subject to reference rates set by the central bank and thus they can be bought quite easily at prices not higher than what importers have to pay for US dollars on the so-called black market, the manager said.

Commercial banks have found it difficult to purchase dollars after the central bank tightened controls on dollar trading early this month.

Phan Thi Chinh, deputy chief executive officer of Hanoi-based Bank for Investment & Development of Vietnam, said last week that many exporters don’t want to sell their dollars to banks, as lenders have to pay official rates. Exporters can fetch higher rates for their US currency on the black market.

Vietnam has prohibited commercial banks from charging fees or commissions on the sale of US dollars in a bid to curb dollar sales outside the trading band, according to a statement on the central bank website on July 1.

Commercial banks are not allowed to trade the greenback at more than 5 percent on either side of the midpoint rate set each day by the State Bank of Vietnam, but some have recently used extra “fees” to get around the rule, the statement said.

Nguyen Thi Tam, deputy general director of Techcombank, said making payments in currencies other than US dollar was a feasible option for local importers right now.

The problem, however, was that many businesses have no experience with other currencies as they often only deal in US dollars, Tam said.

Moreover, as other currencies do not have their rates fixed like the dollar, they can fluctuate widely against the dong, which was more risky for importers, she said.

“They only pay in other currencies when they have no other alternatives. Businesses making payments in Japanese yen, for instance, often say they have to suffer losses due to fluctuations in exchange rates.”

Experts said the central bank can ease the pressure on the forex market by either widening the dong/dollar trading band to tie exchange rates closer to market supply and demand, or raise dong interest rates to encourage dollar speculators to cash out and make dong deposits.

However, both moves could lead to higher inflation, they said.

The central bank has kept the trading band unchanged since March, when it widened the band to 5 percent on either side of its fixed daily midpoint from 3 percent on March 24.

The bank also said it planned to keep key interest rates for the dong stable in the second half of 2009.

Inflation this month eased to a five-year low of 3.31 percent and the trade deficit shrank 78 percent in the first seven months, providing potential support for the dong.

The dong declined to a record low of 17,862 against the US currency last week.

Steelmakers this month asked the government for help in getting hold of the dollars they need to pay for imports, according to the Vietnam Steel Association.

“You have to pay more than the official rate to get dollars,” Alan Young, chief operating officer of Vietnam Industrial Investments Ltd., said last week. “When we know we’ve got a shipment coming in we’ve got to start accumulating dollars on a daily basis a week in advance.”



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