Forex is still a hot potato to handle

illustration photo

Local monetary authorities must mull whether the forex market is too complex for technical measures and should administrative measures be applied.

Louis Taylor, general director of Standard Chartered Bank Vietnam, said market participants would welcome a self-adjusting market mechanism with limited direct controls from authorities.

“However, from 2011, the situation is obviously too complicated. The government sometimes needs to intervene in the market and I think the measures deployed recently are in the right direction,” said Taylor.

Early this year, the government requested giant state-owned corporations sell their dollar deposit account holdings. PetroVietnam, for instance, sold more than $2 billion to the banking system.

In March and April, the authority also increased the reserve requirement ratio for dollar deposits from 4 to 6 per cent of total deposits.

The moves were aimed to lower dollar-denominated credit growth and placed a 3 per cent per year cap on dollar denominated deposits for individuals.

“It is important for the country to restore the confidence in the currency. Because otherwise it cannot control the money supply nor private and public investment,” added Taylor.

With the confidence coming back to dong, the currency continued to appreciate against the dollar in April.

By the month’s end the dong was trading at VND20,655 per dollar on the grey market, gaining by 2.2 per cent against the greenback from the end of March.

Concurrently, the dong appreciated 1.5 per cent from the end of March on the interbank market to trade at VND20,650 per dollar.

Compared to its lowest level since the February devaluation, the dong has appreciated by 6.9 per cent against the dollar on the grey market.

In addition, in the market, most banks are now willing to sell dollars to individuals within the trading band.

Nguyen Dong Tien, deputy general director of the State Bank, confirmed that the authority was buying dollars from commercial banks.

“Confidence in the dong is back and the State Bank can buy dollars to fortify forex reserves,” said Tien.