The dong has strengthened against the dollar and dollar-denominated deposits have increased over the past week after the central bank clamped down on foreign exchange transactions in the unofficial market. On Thursday, the dollar traded at Vietcombank at VND20,865, down from VND20,880 a week ago.
Thanh Nien Weekly discussed the implications of the move with former State Bank of Vietnam Governor Cao Sy Kiem.
Thanh Nien Weekly: The government is strengthening surveillance of foreign currency trading in the black market. Will it be an effective measure given that the amount of foreign currency held by locals is very big, and administrative measures taken over the past ten years have been unsuccessful?
Cao Sy Kiem: The current measure aims to implement the foreign currency management ordinance which had been issued in the past. However, we did not implement it strictly, and this seriously affected foreign currency trading as well as supply and demand, resulting in speculation.
So, this measure is quite necessary. After strict implementation, the situation in the market is less tense, and the foreign exchange rate is down.
However, the issue is whether the measure is applied for a long time or not, and how ordinary people's demand for foreign currencies is met. The surveillance tackles those violating the law and speculators who harm the market. Thus this is a normal measure and should be supported.
We have not paid due attention to strengthening activities of relevant agencies to meet the demand of people for foreign currencies. There should be commercial banks or local individuals with licenses, so that people can easily buy or sell foreign currencies to banks at stable prices.
The government has asked the State Bank of Vietnam to come up with a plan for foreign currency and gold bullion management and de-dollarization of the economy, which will be approved by the government in April.
If this is approved, together with the current measure, the problems in the foreign currency market will be dealt with. The market will develop in a more stable manner, and speculation as well as illegal trade in foreign currencies will be prevented.
Would foreign currency trade still continue as an underground activity?
- Obviously, when the surveillance is strengthened, we can expect that the trade in the black market will be disguised and conducted secretly. So we have to take tough measures to prevent it
Nguyen Quang Huy, head of the central bank's foreign exchange management department, said the foreign exchange market has shown positive developments and the exchange rate has stabilized because domestic exporters who were selling foreign currencies to banks and authorities had adopted tough measures to stabilize the free market.
He conceded that this could affect some people who buy or sell foreign currencies in the free market.
According to current regulations, people can buy dollars at banks to meet their legal needs. However, some banks are still cautious about selling foreign currencies to individuals. People could also use international payment cards to meet their foreign currency spending needs abroad, he said.
The State Bank of Vietnam is considering some specific measures to make it easier for individuals to buy foreign currency cash from banks at reasonable prices.
In fact, one of the main reasons for the problem is the habit of hoarding foreign currencies. Is it easy to give up the habit?
- The habit is due to inflation and difficulties in buying foreign currencies from banks. As the Vietnamese dong is devalued, people buy dollars and gold as a way to protect their assets from inflation. So, we have to curb inflation, and when it is reduced, the dong's value will increase. And when market management measures are brought into full play, speculation will be limited, helping narrow the gap in the exchange rates between the black market and the official market. When this happens, people will give up the habit.
In addition, our service should be better so that people find it easier to buy dollars from official channels. If it is easy for people to buy foreign currencies for legal needs like studying, traveling and getting healthcare abroad, they will stop hoarding.
However, it is not easy to buy foreign currencies from official channels.
- Yes, that is the current situation. However, the government has asked the State Bank of Vietnam to ensure that people can obtain foreign currency for their real needs even as it tightens controls over foreign currency trading.