Gold frenzy is stoking the forex market flames

After four months of fluctuating within the trading band, the greenback is on the appreciation path again despite the newly appointed State Bank governor Nguyen Van Binh’s pledge to make exchange rate stability his top priority.

Early last week, the forex market went mad with grey market  hitting VND21,300 per dollar, a mark not seen since February 2011.

The exchange rate finished the week at VND21,000 per dollar.

Nguyen Thanh Toai, deputy general director of Asia Commercial Bank (ACB), said that supply-demand level for dollars was normal last week.

“Thus, the exchange rate fluctuation might just be temporary,” said Toai.

Nguyen Hoang Hai, general secretary of Vietnam Association of Financial Investors (VAFI), said that the rationale behind gold and forex frenzy was the gold market management mechanism.

“Gold is a kind of foreign currency. US dollars are banned from being traded on the black market, but gold is free to be traded without any taxation. This makes the forex market’s long-term stabilisation a difficult task,” said Hai.

Hai said trading gold should be regulated as a restricted business with authorisation from a relevant authority.

Last week, in a bid to cool down gold’s hot run, the State Bank allowed for the import of five tonnes of gold, worth about $280 million till August 31. The option for a further five tonnes of gold imports can be taken.

A BIDV source said the gold import news might have created the psychological effect that the greenback would appreciate on rising demand. “In fact, a few hundred million dollars is not a large amount at all,” the source said.

According to the State Bank, since 2011, Vietnam’s gold export turnover had reached $1.2 billion.

Nguyen Thi Kim Thanh, head of the central bank’s Banking Strategy Institute, said that the forex market would stabilise shortly.

“The supply is rich in 2011, though we need to address the high growth of dollar denominated credit,” said Thanh.

From January 1 through June 20, according to the State Bank data, dollar credit growth hit 23.47 per cent, while dollar mobilisation growth stood at 8.9 per cent. At the moment, lending rate in Vietnam dong is 20-25 per cent, per year while lending rate in dollar is around 8-9 per cent, per year.

“In a longer term, dollar credit abolishment is needed to stabilise the forex market  like in other economies,” said Thanh.