Businesses say tightened forex policy welcomed

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Local banks and financial institutions welcomed the central bank's recent moves to reinstate market confidence in the dong by limiting dollar hoarding, and industrialists remained confident the new directive will not affect business adversely.

Next month, firms that are more than 50 percent government-owned will have to sell dollars held in fixed-term and non-term deposit accounts.

The adjustment measure has met without much concern from state-owned businesses. Vietnamese finance officials have hailed it as a solution to Vietnam's economic woes.

Cao Sy Kiem, member of the National Monetary and Financial Policy Advisory Council, said the regulation could help reduce the hoarding of dollars and curb trade deficit.

To prevent firms from losing money on the deal, Kiem said the central bank should ask commercial banks to buy dollars at a fixed price and offer a single exchange rate for buying and selling foreign currency to those businesses.

Ninh Thi Ty, deputy general director of the Vietnam National Textile and Garment Group, said that the firm has bought and sold dollars from banks without problems.

She didn't believe the new move would have any adverse effects on their business.

"Our dollar sales to banks are always higher than the amount of the foreign currency we buy," she said.

De-dollarizing

The latest order came on the heels of a spate of economic reforms aimed at pulling Vietnam away from its reliance on dollars.

At the beginning of the month, the State Bank ordered commercial banks to raise their reserve-requirement ratios on dollar deposits by 1 percentage point to a range between 4 percent and 7 percent.

On June 2, the State Bank of Vietnam lowered its rate cap on individual dollar deposits to 2 percent from 3 percent, and cut the limit for institutions to 0.5 percent, from 1 percent.

Banking and finance officials have hailed the moves as "good medicine."

"These measures will reduce the use of dollars in the country, help stabilize the currency market, and encourage a switch from dollar holdings to other assets," said Nguyen Dai Lai, former deputy head of the Banking Development Department under the State Bank of Vietnam. "We should have taken these measures when we joined the WTO."

Lai said Vietnam should gradually eliminate foreign currency credits, and only offer dong loans.

Without foreign currency credits, the trade deficit may be reduced, he said.

"We should ban the domestic use of dollars," he added. "Dollars used for domestic exchanges should be confiscated."

Vietnam has been spending more on imports than it earns from exports. The trade deficit reached about US$6.6 billion in the first five months of the year, up 23 percent from the same period in 2010.

Truong Hoang Luong, general director of the Kien Long Bank, said commercial banks currently have an abundant supply of dollars. As a result, the forex market appears  to be stable for the moment.

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