From today June 27, the State Bank of Vietnam is to officially launch synchronic and strong measures to stabilise forex rate instead of only supporting credit institutions. Thoi Bao Kinh Te Vietnam had a talk with SBV’s governor Nguyen Van Giau about forthcoming interventions to stabilise the foreign currency market.
Why did SBV still let the dong appreciate strongly against the US dollar in long time?
We see that SBV’s policies always are launched synchronically with other macro policies. Especially, forex policies have a close relationship with the country’s import export activities.
The government ordered relevant agencies to find out solutions to create better conditions for exports and consider import cuts with an aim to control trade deficit. Up to the last weekend, the government was heard that the solution to control trade deficit is fairly possible meaning that the country’s trade gap will be restricted at about US$20 billion only within 2008. In addition, Vietnam also is making big efforts to reduce public investments and some projects proposed by state corporations, which is expected to directly affect to trade deficit targets. From this, we will propose solutions to stabilise the foreign currency market.
Which solutions did SBV plan?
Being allowed by the government and the prime minister, SBV officially is intervening the foreign currency market to stabilise the forex rate under regulations on operation of central bank.
First off, we decided to widen the forex trading amplitude of credit institutions to +/-2% against the interbank average forex. Besides, SBV forced credit institutions to list and trade US dollar right in line with SBV announced forex rate adding the amplitude of 2% and not to use the third foreign currency to calculate the final dong/US dollar forex rate because the foreign currency trade through the third banknote will cause disorders in dong/US dollar forex rate. Moreover, credit institutions are not allowed to collect extra relevant fees.
Also, we will enhance supervision and checks on banks that violate forex regulations and focus on re-arrange system of 2,291 foreign currency exchange agents of credit institutions. Some legislation documents will be modified to monitor the foreign currency market more strictly and comprehensively. These documents concern that SBV will enhance the selling of foreign currency to support commercial banks but I want to use a stronger word “intervention”.
You said that the trade deficit is expected to be restricted at US$20 billion within this year. Which source could compensate for the estimated deficit?
Most in countries with excess of imports over exports like Vietnam, compensation for trade deficit is sourced from foreign direct investment, foreign indirect investment, other deposits such as overseas remittance and foreign currencies of tourists arriving in Vietnam.
After calculating all statistics, Vietnam’s general payment scale will be still positive if ensuring the trade deficit at less than US$20 billion in 2008. So we will gain a surplus of about US$2.5 billion from exports.
Why did SBV decide to widen the forex trading amplitude to +/-2%?
We monitor flexible forex policies under control. There should be amplitude to help credit institutions to define their listed forex rates. The amplitude could be raised gradually in the future. Thanks to the widening of forex trading amplitude, credit institutions will be more flexible.
But whether will the market appear a two-price phenomenon?
In next time, we will have a clear roadmap for the applying of forex rate policy of credit institutions. As for illegal forex transactions in the free market, there will be particular punishments for each case.
Can you please reveal the amount of US dollar was being sold out to support credit institutions in the recent time?
Intervention means that we have to accept the selling of US dollar straight to credit institutions based on each demander. Now the importance is psychology. Reportedly, the general scale between non-residence payment and capital scale during the first half of 2008 is equal, but due to the psychological factor, the demand and supply of US dollar seem to be unbalanced. Factually, many importers still face difficulties as buying US dollar.
I believe that from June 27, enterprises will not keep US dollar anymore. Although Vietcombank’s forex rate on June 26 is 17,000 dong/US dollar, the number of US dollar sellers is still large. That is a good signal.