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Banks lacking dollars, convincing businesses to use other currencies   2009-07-27 - TBKTSG

As commercial banks now do not have dollars to sell to import companies, they have advised the companies to make payments in other currencies.


The State Bank of Vietnam has strictly prohibited commercial banks from collecting additional fees on dollar sales, by which method they were selling dollars at higher than allowed price levels. Meanwhile, banks cannot sell dollars at stipulated prices because they cannot purchase dollars at quoted prices. As a result, import companies have been thirsty for dollars to make payments for imports.


Foreign Currency Trade Director of a foreign bank in Vietnam said that the only solution for Vietnamese companies now is to make payments in other foreign currencies.


For example, a business imports a consignment worth $1 million and it requires the foreign exporter to write down in the contract that the value of the contract is set in dollars but the importer has the right to make payment in other currencies at the exchange rates of the payment date.


Under the current laws, the State Bank of Vietnam announces the interbank VND/US$ exchange rate every day. This serves as the official rate for commercial banks to set their exchange rates for transactions. The highest and lowest rates commercial banks can set are calculated by the interbank exchange rates plus or minus the trading band, stipulated for different periods. The trading band is now +/-5 percent.


While there is always a cap on the VND/US$ exchange rate, there is no cap on the exchange rates between VND and other foreign currencies.


Nguyen Thi Tam, Deputy General Director of Techcombank, said that making payments for imports in currencies other than the US dollar proves to be the most feasible method for now for import companies.


However, as Vietnamese businesses are not overly familiar with other foreign currencies, they are still hesitating to follow this path. In fact, other foreign currencies may go up and down in value more rapidly than the dollar, because no limits are set for the exchange rates between the VND and the other currencies.


Tam admitted that businesses will only make payments in non-dollar currencies if they have no other choice. A lot of businesses have complained that they have lost money when making payments in Japanese yen.


Experts said that there are two options for the State Bank of Vietnam to settle the current dollar shortage.


In the first option, the central bank can consider either loosening the trading band (which is now +/-5 percent), or raising the interbank exchange rate to make the exchange rates more truly reflect the market’s performance.


In the second option, it can raise the VND basic interest rate. The move would help VND deposit interest rates be more attractive than US$ deposits, which would encourage people to sell dollars to get VND to deposit at banks.


However, experts have also warned that these measures could lead to high inflation.


No further moves have been made by the central bank to settle the current dollar shortage, except for more frequent inspection tours to discover banks which are selling dollars at prices higher than the allowed levels.


According to Ho Huu Hanh, Director of the HCM City Branch of the State Bank of Vietnam, $9 billion is now deposited at local banks, half of which came from institutional clients.

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