State Bank surprises with 2.1% devaluation of dong; black market hot

VietNamNet Bridge – Late on Tuesday, August 17, the State Bank of Vietnam (SBV) announced it would drop the dong’s value against the US dollar rate by two percent. The black market adjusted immediately.

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From August 18, the average dong/dollar interbank exchange rate is set at 18,932 dong per dollar instead of 18,544 dong per dollar, an adjustment of 2.1 percent.

Vietnam’s central bank said the change is intended to help control the trade deficit.

For the last month the black market dollar price has been increasing, prompting businesses and individuals to complain that they could not purchase dollars from banks.

Commercial banks are allowed to sell dollars for plus or minus three percent of the interbank rate. As long as dollars are in short supply, buyers at banks can expect to pay about 19,500 dong per dollar (the interbank rate plus three percent), rather than the 19,100 rate that has prevailed since February.

Small adjustments

This is for the third time the central bank has adjusted the official exchange rate since since November 2009.

On February 11, the central bank unexpectedly raised the interbank exchange rate from 17,941 dong per dollar to 18,544 dong per dollar, a downward adjustment of 3.6 percent. Prior to that, in November 2009, the bank adjusted the interbank exchange rate by 5.44 percent to 17,961 dong per dollar, while lowering the trading band from five percent to three percent.

Black market dollar prices had been increasing steadily over the last month, spiking to 19,340 dong in the last week, 1.25 percent higher than the ceiling level commercial banks were allowed to quote.

The head of the Foreign Trading Division of a big bank said that the trading volume of the bank had been decreasing sharply, by 30-40 percent.  With the quoted prices lower by 200-300 dong than the black market prices, the bank found it difficult to purchase dollars and therefore did not have dollars to sell to clients.

Commercial bankers, though conceding that the dollar supply had become short, stressed that the situation is not overly tight, especially if compared to 2009, when the black market dollar price was always 1000 to 2000 dong higher than the price quoted by commercial banks.

National Finance Supervision Council Chairman Le Duc Thuy told VnExpress newspaper on August 17 afternoon that a gap between the black market price and the price quoted by banks of less than one percent is not abnormal.

VnExpress quoted a source at the State Bank as saying that the bank does not intend to increase the dollar supply to the market, because the foreign currency position of the whole banking system is still long.

“We expect that in the first days after the adjustment of the exchange rate, the black market price will not exceed 19,300 dong per dollar,” the source said.

Meanwhile, the black market responded promptly to the State Bank’s decision. VnExpress says that as night fell on August 17, some foreign exchange shops quoted a sky high sales price of 19,600 dong per dollar.  Meanwhile, the domestic gold price had soared by 330,000 dong per tael, though the world price was unchanged.