FX to avoid getting hot under the collar

US dollars have depreciated on the back of a string of bailout packages on a global scale. Should Vietnam adapt a suitable exchange rate policy to match the global situation?

Vietnam’s balance of payments is currently good, so possible exchange rate pressures later in the year will not be big. However, monetary policies should be active, but not passive as in some previous years.

Our foreign currency reserves are strong on the back of declining imports, but not thanks to rising exports. One needs to remember that the dong currency’s 9.3 per cent devaluation as of February 11, 2011 had resulted in sagging purchasing power of the dong currency.

Thereby, if we tried to rein in the exchange rate, it would make dong currency appreciate against low actual purchasing power in the market.

I would not advocate dong currency devaluation move since doing so would exaggerate burdens on the economy and drive up debts. However, in my view around 2 per cent trading band to the exchange rate is reasonable to avoid putting the economy, particularly export businesses, in a fix.

The ups and downs in the exchange rate in the past time closely relate to gold price volatility. Will the bullion price continue affecting on the exchange rate in the coming period?

In fact, unstable domestic market bullion prices mainly came from our management approach, but not totally from world market price factor. The current management mechanism has widened the gap in domestic and world market gold prices, causing gold fever.

We need to seriously look at the current way of gold management. One should not forget that saving in gold is safe and traditional to local people. We should protect the right for storing assets of people which could not be abolished overnight though de-dollarisation and de-goldisation is a correct orientation.

Besides, since the dong currency is yet to have a convertible value, gold and foreign currencies should be held of the same importance. The bullion market should be controlled as with foreign currency market to keep the gold market stable, avoiding casting adverse impacts on the exchange rate.

This means interest rates will remain enterprises’ greatest concern in year-end period. True?

In my view, holding the interest rate this year at 8 per cent per year is a hard task since September’s consumer price index (CPI) hiked sharply at 2.2 per cent against August.

The possibility for mobilising rate to further drop, leading to softening lending rates will be hard.

One step we can take to support firms now is requiring banks to shorten interest rate margins from 6 to 4 per cent, and make full provisions for bad debts.

Banks must exercise corporate social responsibilities. They may incur losses this year, but not always report profits.

Another problem is that some banks continue vying for depositors through joining a rate hike race, showing that they have incurred liquidity tension.

The State Bank should take an iron hand towards these banks as they are also banks which faced illiquidity in the past.

In respect to firms, banks need to support production firms with good business records but temporarily facing difficulties due to bad debts to help them revive.