Central bank to soak up dollars with priority for exporters
Source: 27-MAR-2008 Intellasia | Reuters
Mar 27, 2008 - 7:00:00 AM Vietnam's central bank said on Tuesday it would buy U.S. dollars, giving priority to exporters, who are currently facing a shortage of the dong currency.
The central bank had recently cut the amount of dollars it bought from commercial banks, making it difficult for exporters to convert earnings into dong to pay for costs and salaries.

The dong started rising against the dollar at the end of last year, a trend underpinned this year by central bank measures to tighten monetary supply to tackle double-digit inflation that hit 15.7% in February.

The dong has appreciated about 1.1% from January and about 2.7% compared with last August, prompting banks to slow dollar purchases from exporters, whose turnover the government estimated jumped 23.7% in the first quarter from a year earlier to US$13.2 billion.

"The State Bank of Vietnam will continue to make selective purchases of foreign currencies from credit organisations with priority given to exporters," the central bank said in a statement on Tuesday.

Vietnam had until recently pursued a policy of pushing the dong down gradually against the dollar to bolster export competitiveness.

The statement said the central bank "has requested credit organisations to report on their actual forex balances in order to have a suitable and positive solution for the extra forex holdings".

Shortages of the dong have rippled through Vietnam's banking system, businesses and the developing Southeast Asian country's fledgling stock markets following a drying up of liquidity.

Tuesday's statement said dollar sales and purchases would still be subject to the plus or minus 1% trading band around the mid-rate set daily by the central bank.

For other currencies, the banks are allowed to set their own exchange rates.

The central bank also said a government directive on March 5 about a "+/-2% movement of the dollar against the dong" was policy guidance, but it gave no specific time.

"Depending on the market forex supply and demand, the central bank governor will have a specific decision in each period for the trading band within which credit organisations are allowed to trade forex," the statement said.

Bankers have been calling for further relaxation of the dollar/dong exchange control.

"Widening the trading band further will be reasonable. The central bank should have expanded the band to 1.5%," Nguyen Manh, head of state-run Vietindebank's Capital Source Department said.