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Vietnam economy sees dollarisation decline
Publication Date : 30-09-2013
The prevalence of US dollars in the Vietnamese economy had decreased significantly since the end of 2011 and the exchange rates had been stabilised, according to a State Bank of Vietnam statement.
The decline of dollarisation (the habit of using US dollars in daily activities and trades between local people and firms) was seen in the narrowing ratio of foreign currency deposits against total money supply.
The figure fell from 30 per cent in 1990, to 15.8 per cent by the end of 2011, most recently dropping to 12 per cent by the end of last month.
The central bank also pointed out that credit in Vietnamese dong had surged significantly, while credit in US dollars had plummeted. In the first eight months of the year, credit in dong rose 10.4 per cent while credit in dollars fell 11.55 per cent.
The central bank has also taken measures this year to stabilise exchange rates and the foreign exchange market, helping to raise the country's forex reserves, support the implementation of monetary policy and control inflation.
A number of key measures have indicated the central bank's effectiveness in achieving these aims. For example, the central bank said at the start of the year it would continue to keep exchange rates stable within the 2-3 per cent fluctuation band to improve market sentiment, drive exchange rate expectations and reinforce the people's confidence in the domestic currency.
The SBV upgraded the average inter-bank exchange rate by 1 per cent from 20,828 dong/US$ to 21,036 dong on June 28, while cutting interest rates for US dollar deposits to encourage people to hold their dong and reduce foreign currency holdings.
The central bank has also maintained flexible dollar bid prices to encourage banks to sell foreign currency to the SBV.
Due to the synchronous and drastic measures, the forex market and the exchange rate held firm in the first eight months this year, as many of the other targets were also met.
VIB deputy director Le Quang Trung forecast the exchange rate would likely be adjusted up 1 per cent before the end of the year to support exports.
However, with the possible rise, the exchange rate would stay within the 2-3 per cent fluctuation band targeted by the central bank.
Trung said dollar demand often rose at the end of the year when businesses import demands were high, adding that the central bank's continuous gold imports to supply the domestic market could also cause dollar demand to rise.
Trung recommended that businesses, especially major exporters, should sign insurance contracts to negate risks related to exchange rate losses.
Director of the Bank for Investment and Development of Viet Nam's Transaction Centre No3 Can Van Luc also anticipated that dollar demand at the end of the year would surge significantly, but said the change would come in ‘small waves', causing little impact on the forex market.