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Dong holders hedge on the dollar

07-Jan-2007 Intellasia | 10-MAR-2004 Thanh Nien Page 5 | 2:21 PM

Since the beginning of March, the US dollar in the market in HCM City and Hanoi has increased markedly. Many jewellery businesses said that the number of US dollar hunters is increasing surprisingly whereas at commercial banks, a shortage of US dollar has started to occur.

“Demand for buying US dollars in the currency market has been increasing strongly due to psychological factor,” commented one Vietcombank official. “Since the beginning of the year, the consumer price index has risen 4.1% especially strong price increases of key commodities such as food and imports such as construction materials and petroleum products is causing holders of dong to think twice about their money position. In addition, the official forex rate in the interbank market has been constantly inching up, even by 15 dong per US dollar a day. This constant rise is worrying dong holders. On March 8–9, the price of US dollars in HCM City increased to 15,950 dong per US dollar and in Hanoi, the rate went to 15,960 dong—higher than the rate quoted by Vietcombank by 150 dong per US dollar.

At commercial banks, demand for dollars to pay for import payments is increasing especially for petroleum product importers who are facing the heaviest pressure to obtain hard currencies, mostly the dollar. In addition, the impact of US dollar price increase has led to withdrawals of dong by other traders to switch to the US dollar to avoid the risk of US dollar demand increasing to unforeseen levels.

Pham Van Thiet, the general director of Asian Commercial Bank (ACB) said that the domestic gold price is now lower than the world price so some gold trading businesses are currently buying up US dollars to import gold.

The general director of Export and Import Bank of Vietnam (Eximbank), Nguyen Gia Dinh, analysed that in recent days other major currencies such as the euro and yen have weakened and only the US dollar has gained. Dong owners want to hedge their capital so they are putting more dong funds into US dollars whereas import-export businesses want to buy as much US dollars as possible to cover future payments. Consequently, a relative shortage of the greenback at commercial banks is inevitable in the short term.

“Inward remittances from [mostly overseas Vietnamese] of US dollars at commercial banks have not yet met the domestic demand for US dollars. Therefore banks will not be able to immediately meet all customer demand for US dollars”, commented ACB’s vice director, Pham Van Tan.


Category: Finance

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