Anti-dollarisation efforts face challenges

Illustrative image (Source: VNA)

Hanoi(VNA) - The State Bank of Vietnam’s anti-dollarisation efforts have managed tokeep the dong-dollar exchange rate fairly steady for a long time, thus helpingstabilise the monetary market.

But the fightagainst dollarisation is expected to face challenges after the dollar began tostrengthen against the dong on both the official and unofficial markets afterthe US presidential election results were announced last November and theFederal Reserve recently unveiled a roadmap to raise the interest rate on USdollar.

On February 23, thecentral bank of Vietnam had to hike the reference VND/USD exchange rate to arecord high of 22,231 VND. Following this, some banks raised their dollarselling and buying rates by 5 VND.

State giantVietinbank hiked its buying rate to 22,795 VND per dollar and selling rate to 22,790VND.

The highest sellingprices of between 22,870 VND and 22,880 VND were at ACB, Techcombank andDongABank.

The volatility inthe greenback and new policies announced by the new US government are expectedto affect the volume of the dollar pouring into Vietnam starting this year.

Analysts said the higher value of the dollar encourages individuals andinstitutions including banks to deposit their dollar holdings abroad to enjoyhigher interest rates since the deposit interest rate in Vietnam is still zero.

Meanwhile, the protectionism US Government will have to apply high tariffs onimports, including of Vietnamese goods.

This means exportsto the US are likely to drop and affect the country’s foreign exchangereserves. 

Vietnam’s foreign exchangereserves could also be affected by falling remittances by Vietnamese-Americansdue to the US’s policy of tightening its immigration laws, which is likely toworry the ethnic Vietnamese living there and cause them to hoard their money.

Meanwhile, dollardemand remains high in the domestic market to pay import bills.

This high demand isseen from the fact that though the central bank has for a long time beenplanning to stop banks from lending in foreign currencies to exporters, it hasnot been able to achieve this.

In its Circular 31,the central bank has allowed exporters to borrow in foreign currencies untilthe end of this year.

In the event, manyexperts have suggested that the central bank should remove the zero interestrate policy to be able to further mobilise the greenback.

But the problem withthis is that it could again cause people to hoard dollar-VNA.

VNA