High dollar price “feeding up” commercial banks

Businesses complain that the “dual foreign currency price mechanism” is still persisting, even though the State Bank of Vietnam has raised the official exchange rate to narrow the gap between the official exchange rate and the black market’s exchange rate.

The dong/dollar exchange rate on the black market on February 18 jumped to 22,150 dong per dollar. The exchange rate on the official market was also very high.

Right after the State Bank released the decision to devalue the dong 9.3 percent by raising the interbank exchange rate from 18,932 dong per dollar to 20,693 dong per dollar, most banks raised the quoted dollar price to 20,940 dong per dollar, the ceiling dollar price level. Under the current regulations, the dollar price quoted by commercial banks must not more than three percent higher or lower than the interbank exchange rate announced by the State Bank.

However, businesses complained that banks seem to still be unsatisfied with the price increase and are selling dollars at the prices higher than the quoted levels. A lot of commercial banks now collect “foreign currency transaction fees”, which makes the actual dollar prices much higher than the quoted price levels.

Meanwhile, the dollar price on the black market has made new records. On the afternoon of February 18, the exchange rate on the black market soared to 22,000-22.150 dong per dollar (purchase and sale prices). After that, in the morning of February 19, the dollar price increased by another 200 dong per dollar, pushing the dollar price to 22,400 dong per dollar. With the new price, the gap between the official exchange rate and the black market is about 1000 dong per dollar.

Observers said that the big gap between the official and the black market’s exchange rates has been “fattening” commercial banks, and it has been prompting the black market’s exchange rate to increase further.

The director of a steel import company on February 18 said he had to purchase dollars at banks at 21,170 dong per dollar on February 17, or one percent higher than the ceiling level.

The director said that previously, when the interbank exchange rate stayed at 18,932 dong per dollar, his enterprise had to pay 20,600 dong for a dollar, and the price increased step by step to 20,700 dong, 20,800 dong and then 21,000 dong.

Experts have urged that drastic measures are applied to eliminate the dual dollar price scheme, saying that the scheme is the biggest problem for businesses,because businesses cannot legalize their expenses (they have to pay high prices to purchase dollars, but they only can declare low prices).

According to Dr Nguyen Xuan Thanh, Deputy Director of the Fulbright Economic Teaching Program, if the exchange rate on the official market always hits the ceiling level and is lower than the black market’s exchange rate, this will lead to the existence of two exchange rates. The black market’s exchange rate will pressure the official exchange rate, and if so, the market’s tension will force management agencies to adjust the exchange rate again.

The State Bank of Vietnam needs to regulate the exchange rate in accordance with the message it released, ease the pressure on the black market and create confidence for dollar holders. If these things cannot be done, the tension will not be eased, and the expectations on the dong depreciation will still persist.

The foreign currency market is so hot these days that some local newspapers reported that even petroleum importers, who always get priority in purchasing dollars, also cannot purchase dollars from banks.

However, the State Bank of Vietnam on February 18 denied this claim, affirming that commercial banks have committed to selling enough dollars to petroleum importers to import products to satisfy the domestic demand.- VnMedia

Tags: US dollar price in Vietnam