Friday, July 6, 2012

Time to adjust Dong/Dollar exchange rate

It’s time to adjust dong/dollar exchange rate
Posted: 04 Jul 2012 05:06 AM PDT
LookAtVietnam – Some bankers have urged the State Bank of Vietnam to
regulate the dong/dollar exchange rate in a flexible way to ensure the
harmonization of different economic goals, instead of trying to stabilize the
exchange rate somehow.

The dong/dollar exchange rate has been fluctuating regularly since early June.
When the dollar price increased slightly in early June, this did not catch the
attention of the public, because the central bank committed at the beginning of
the year that the dong will not devaluate by more than 3 percent by the end of
the year.

Experts also said on local newspapers that they did not think the dollar price
increase would continue in the context of the profuse foreign currency reserves
and kieu hoi (overseas remittance).

However, the dollar price has increased continuously since then. The dollar
price once climbed to 21,000 dong per dollar. Meanwhile, worries have been
raised among businesses that the dollar supply would be short in the time to
come. The dollar demand is believed to increase towards the end of the year,
when businesses need dollars to make payment for imports. Besides, the dong has
become more attractive when the dong interest rates have been lowered by the
State Bank.

Thoi bao Kinh te Vietnam has quoted a senior executive of HSBC as saying that
the exchange rate may not fluctuate too heavily in the third quarter of 2012,
but the dollar would surely be appreciating in the fourth quarter of the year.

Businesses have been told to keep cautious with the stabilization of the
dong/dollar exchange rate for a long time. In general, businesses do not use any
“defensive measures” which help them deal with the exchange rate fluctuations;
especially, they see the dollar price stable for a long time.

The businesses would only hurry to take actions when the dollar prices soar and
influence their business. This would cause uncertainties to the whole market.

Trinh Quang Anh, Director of the Economics Research Center of Maritime Bank said
on Dau tu that it’s now the time to adjust the dong/dollar exchange rate.

Anh said that the State Bank has been succeeding in its effort to stabilize the
exchange rate and the activities of the foreign currency market, improve the
foreign currency reserves and restore people’s confidence on the local currency.
However, this does not mean that the central bank would have to strive to the
same goal for ever.

He went on to say that the central bank should take actions right now in order
to avoid the overly hard pressure on the exchange rate which may occur by the
end of the year, when the dollar demand increases.

A banker who asked to be anonymous, also said it would be better if the central
bank begins devaluating the dong/dollar exchange rate slightly right now. The
exchange rate gradual adjustment would help make businesses get adapted to the
new circumstances and avoid the shocks to be caused in case the exchange rate
increases sharply at the end of the year.

The banker said that when the dong interest rates decrease, the adjustment of
the exchange rate would be necessary to harmonize the demands on the market.

If the central bank still holds out the nominal exchange rate for too long, thus
generating big gaps between the nominal exchange rate and actual exchange rate,
this would prompt people to speculate dollars, which would make the dollar fever
more serious by the end of the year.

Dau tu has quoted Truong Dinh Tuyen, a member of the advisory council for
national monetary policies, as saying that curbing the exchange rate fluctuation
within 3 percent this year proves to be a possible mission. However, the
government should think about whether to try to do that.

“When the dollar demand was low, we once asked to loosen the trading band.
However, the State Bank still tried to make the exchange rate stand still,” he

According to Thoi bao Kinh te Vietnam, Vietcombank and Eximbank quoted the
dollar prices at 20,850-20,910 dong per dollar on July 2.

C. V
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