Hot forex market cools its heels

Greenbacks are losing their attractiveness as the local currency flexes its muscle

Last week, the US dollar was traded at VND20,930 on the unofficial market, while on the interbank market it was quoted at VND20,935 per dollar. It should be noted that the two rates were within the trading band of the State Bank, a fact that has been absent for months.

Two weeks ago, Prime Minister Nguyen Tan Dung directed the State Bank to lower the foreign currency position to limit banks from speculating on dollars. Currently, banks are prohibited from holding foreign currency positions which exceed +/-30 per cent of total equity.

Le Xuan Nghia, deputy chair of the National Finance Surveillance Council, said that this would narrow the door for local lenders hoarding dollars.

“The dong has actually appreciated against dollar over the past few weeks on the free market. This demonstrated that the control measures have good impacts on the market,” said Nghia.

It is expected that the State Bank would release a legal document on the issue within this month and local financial experts believe a new position of +/-20 per cent is appropriate.

A foreign exchange position of +/-20 per cent means that a bank with total equity of $1 billion, for instance, is allowed to hold maximum of VND200 million at the end of the day.

The prime minister also requested the banking authority to cut the amount that individuals are allowed to take out of the country at a maximum of $5,000 without a customs declaration. The current level is $7,000.

Duong Thu Huong, general secretary of the Vietnam Banking Association, said that those moves would certainly restore confidence in the local currency. “Dollar supplies have improved, while confidence in Vietnam dong is strengthened,” she said.

Earlier in April, PetroVietnam revealed that it had sold all $2.7 billion from crude oil exports to the banking system over the first quarter of 2011 as the firm strictly followed the government’s direction to state-owned corporations.

In February, the prime minister stressed that the government would deploy all means to put forex market under control and he directed state-owned enterprises to sell their dollars to the banking system.

State Bank governor Nguyen Van Giau revealed that by the end of March, state-owned corporations’ total dollar-denominated banking system deposits reached $3.61 billion, including $376 million in term deposits.