No hot capital flow poured in foreign currency trading

01-Dec-2016 Intellasia | Bao Dau Tu | 6:00 AM Print This Post

The US dollar price on the market has constantly soared in the last week. In particular, the US dollar price on the black market some time reached up to 23,600 dong per US dollar, far exceeding the official market. However, according to Le Quang Trung, deputy general director and director of Treasury and Foreign Exchange Division of Vietnam International Joint Stock Commercial Bank (VIB), the exchange rate developments on unofficial market for a long time have very little impact on the official market. More importantly the foreign currency transactions at banks were still conducted normally with no records on the advance purchase of foreign currency or foreign currency hoarding.

Trung said that although the demand for foreign currency has slightly increased in the last few weeks, it was mainly due to the payment needs in the end of the year. The US dollar trading were implemented mainly based on the real needs with no speculative factors as in the previous years. Trung added that VIB did not experience massive amount of money poured into foreign currency purchase and enterprises still sell foreign currency to the bank as usual.

Talking to reporter of Bao Dau tu, leader of the Commercial Joint Stock Bank for Industry and Trade of Vietnam (Vietinbank) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) also confirmed that foreign currency trading at the two banks have been normal in the recent weeks. general director of Vietinbank said that there were no signs of foreign currency hoarding or freezing, and enterprises have been familiar with the mechanism to trade foreign currency based on central exchange rate and they still carried out the transactions normally on demand.

According to experts and bank leaders, the appreciation of exchange rate in the recent time was mainly due to the influence of the world prices rather than the supply-demand tension and speculation. Thus, even if the upward trend continues, it is not worrying.

On the other hand, although the exchange rate in November 2016 has fluctuated strongly, it reduced in the early months of the year compared to late 2015. From the beginning of the year until now, the exchange rate has risen by less than one percent, showing that the dong basically remains stable.

With the hot developments of US dollar in the last week, leader of the State Bank of Vietnam (SBV) has given statement to reassure and direct the market. SBV’s deputy Governor Nguyen Thi Hong said that the exchange rate developments in the domestic market in the recent time are understandable because from early 2016, SBV has shifted to a more flexible exchange rate management method which allows the exchange rate to fluctuates daily in line with developments on the domestic and international markets.

By monitoring the foreign exchange market, SBV found out that the supply and demand of foreign currency have basically seen no sudden changes, liquidity has been good, and the legal needs for foreign currency of individuals and organisations have been timely and fully satisfied by credit institutions.

Leader of SBV also said that the sharp rise of exchange rate in the recent time was because of the psychological factor and the agency gave warning that US dollar may see reverse movements in the near future. SBV confirmed that the supply of foreign currency will continue to be abundant in the near future while the foreign currency demand bears no huge pressure. deputy Governor Hong affirmed SBV’s determination to keep the foreign exchange market stable.

Answering questions of reporter of Bao Dau tu, export firms said that they are closely monitoring the fluctuations of exchange rate to make timely response. However, the current volatility of one percent is fairly low and is under firms’ anticipation from the early year.

The question is whether the exchange rate will continue to rise further and when SBV should intervene the market. According to Trung, since the foreign exchange reserve of Vietnam is currently at a record high level while the balance of payments is in surplus and remittances are increasing, etc., the stability of exchange rate will be ensured in the near future, from the perspective of supply and demand. Therefore, the impact on dong (if any) will be negligible if US dollar appreciates.

There are some comments that Vietnam needs to devaluate the dong to support export as US dollar rises. However, an analysis of the World Bank (WB) showed that the policy to devaluate local currency to support export activities of many countries did not bring good results as expected and the losses were even larger than gains.

According to economic experts, in the mean time, SBV should not make any interference. However, the agency shall closely monitor the movements of the currencies in the basket of currencies and follow up the moves of Vietnam’s rival countries to make timely adjustments, at the same time continuously providing oriented-information to assure the market. The intervention should only be implemented when the market is frozen while sellers do not want to sell and buyers try to buy.

 


Category: Finance

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