Dollar cash flowing to commercial banks

A surprising thing is occurring on the foreign currency market: dollars keep flowing into commercial banks. Meanwhile, in the past, banks never successfully persuaded people to sell dollars to them. The dollar price has been decreasing.

The downward trend in the dollar price began earlier this week and lasted all week. The dong/dollar exchange rate has been fluctuating every hour. Big changes could occur at any time during the day. Sellers and buyers have to keep a close watch over the dollar price performance, or they would have to pay a heavy price for their negligence.

According to Thoi bao Kinh te Vietnam, earlier this week, the dollar price suddenly dropped by 100 dong per dollar overnight. The surprise was that the exchange rate quoted by commercial banks was lower than the allowed ceiling price – the thing that very rarely occurred in reality. The margin between the purchase and the sale prices was widened to 60 dong per dollar. No one could imagine before that the dollar would fall one day.

The downward trend continues and the dollar price had decreased by 1.2 percent after five days. On April 26, people thought that the upward trend would stop when the exchange rate of 20,740 dong per dollar was kept for many hours. However, later on the day, the dollar price unexpectedly plummeted to 20,960 dong per dollar.

Many reasons have been cited to explain the move of people to rush to sell dollars to banks. The policies which have been applied recently by the State Bank have made people understand that it would be less profitable to keep dollars than dong.

The bank has decided that commercial banks must not pay more than 3 percent in interest rates for dollar deposits. The decision has made dollar less attractive in the eyes of depositors. They would rather deposit Vietnam dong to get the interest rate of 14 percent than depositing dollars to get 3 percent per annum.

Meanwhile, people believe that if they do not sell dollars right now, they would incur losses if selling dollars later. The dollar prices tend to decrease after the government asks big corporations, which have earnings in dollars, to sell dollars to banks. The sale will certainly help improve the dollar supply.

At the moment, if people want to sell dollars, they will only have one choice – selling dollars to commercial banks, because the black market has been removed after a lot of great efforts by the State Bank and relevant ministries.

Most importantly, people believe that once the State Bank has shown its strong determination to stabilize the foreign currency market, it will apply other policies in some more days to discourage people to keep dollars. Therefore, they believe that it would be better to sell dollars right now, before any new decisions by the State Bank may make the dollar price drop further.

People have every reason to think that other moves towards the stabilization of the dollar market would be taken. Rumors have been spread that the State Bank may narrow the allowed foreign currency positions. Meanwhile, the HCM City Branch of the State Bank of Vietnam has proposed the State Bank to slash the dollar deposit interest rates to zero percent applied to economic institutions. If the proposal is approved, and the new ceiling interest rate is accepted, the dollar price would drop further.

Some local newspapers reported that some commercial banks now only accept to buy dollars, while they refuse to buy other foreign currencies. On April 26, 2011, Trang in HCM City came to ACB Go Vap Branch to sell 400 pounds, but she was refused. Trang then came to an Agribank’s branch nearby, but she also could not sell dollars at the bank.

Deputy General Director of a joint stock bank said it was a surprise to him that the banks refused to purchase pounds, because this is a kind of hard foreign currency.

Observers say that there are about 100 foreign currencies in the world, but Vietnamese banks only accept to buy of some 10 hard foreign currencies

In the latest news, the State Bank has released a draft circular stipulating the amounts of dollars individuals can bring with themselves when traveling aboard. The people, who enter or exit Vietnam, if bringing more than 5000 dollars and 15 million dong in cash, must declare to the sums of money to customs agencies. – Vietnamnet

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial