Big gaps in two foreign currency markets

VietNamNet Bridge – Outstanding loans in foreign currencies of commercial banks are smaller than the mobilised capital volume. Meanwhile, there is a big gap between the exchange rate in the black market and the one quoted by commercial banks.

In the last three weeks, since March 23, when the State Bank of Vietnam decided to raise the forex trading band from +/-3% to +/-5%, the exchange rate in the official market has been stable, while the black market has seen dollar prices skyrocketing.

The dollar price decreased by VND10/US$1 on the black market on April 15 to VND18,020-18,050/US$1 after many days of escalating. However, no one can say for sure what the VND/US$ exchange rate will be like in the coming days.

Meanwhile, the director of a department of the State Bank of Vietnam affirmed that the foreign currency balance remains stable.

The official said that in the first quarter of 2009, Vietnam had an excess of exports over imports, affirming that the current exchange rate is stable with a good supply of dollars.

His words have been confirmed by the fact that the interbank exchange rate announced by the State Bank of Vietnam on April 15 stayed at VND16,939/US$1, which means that the ceiling exchange rate for transactions was VND17,785.95/US$1.

Meanwhile, the exchange rate quoted by Vietcombank, the leading bank in foreign trade, was VND17,786/US$1 the same day, or VND264/US$1 lower than the ceiling level.

Several factors have been cited to explain the big gap between the exchange rates in the official and black markets.

First, according to Nguyen Thanh S, an investment expert at a commercial bank, the dollar price increases on the black market not only because of investors’ moods. The black market has been responding to the information about the state budget deficit, trade deficit, as well as the mechanism on the foreign currency market’s operation.

The high forecast state budget deficit at 8% of GDP has caused worries among people, who fear that this will lead to high inflation and local currency devaluation. As a result, they want to convert VND into other kinds of assets.

Second, though Vietnam had a trade surplus in Q1, experts said that the surplus was gained thanks to the gold exports of $2bil. However, gold exports will not continue in the time to come as domestic prices are higher than the world’s prices. 

Third, commercial banks now find it difficult to get dollars, as many businesses want to buy dollars to make payments for imports, but businesses with dollars do not want to sell dollars to banks.

The director of a commercial bank said that any problem in foreign currency supply and demand is reflected and heightened in the black market. People, when hearing about a problem, will rush to purchase dollars in the market, thus pushing the exchange rate up.

The director said that the key issue now is the confidence of businesses. If businesses believe that the exchange rate is stable, they will sell dollars they get to banks.

The director denied the opinion that the black market’s dollar price has been increasing because investors are trying to collect dollars to import gold illegally. He said that the domestic gold price is just VND400-500,000/tael lower than the world’s price, therefore it is unreasonable to blame the dollar price increase on illegal gold imports.

An official from the State Bank of Vietnam said that the bank is considering measures to prevent businesses from hoarding dollars.