The dollarisation in Vietnam’s national economy seems to be eased recently, but it remains the big challenge for Vietnam’s banking system to integrate the currency into the world.
The dollar – everywhere and at all times
In 1992, the dollarisiation in Vietnam was described as ‘serious’ with 41% of deposits at banks being in dollar. The figure now is 25-35%, which shows that Vietnam has been successful in combating dollarisation. However, no one can deny that dollars are being used everywhere and are present in all transactions.
Under the current regulations on forex management, only the institutions and individuals which are allowed to collect money in foreign currencies in Vietnam’s territories can place advertisement pieces and quote goods’ and services’ prices in foreign currencies. However, in fact, price quotations in foreign currencies can be seen everywhere in big cities like Hanoi and HCM City.
Nguyen Thi Thu, the owner of a luxury jewellery shop at Diamond Plaza, said that she knew the regulations on quoting prices in VND. However, her customers are mainly international guests, therefore, the price quotation should be in dollars for better understanding. Other trade centres and hotels in Hanoi and HCM City all calculate hotel room rates and other fees in foreign currencies. In order to avoid punishment, they quote prices in both VND and US$.
Computer trading firms have been found as the entities most often violating the regulations on price quotation. Even a quotation in both VND and US$ is considered as violating laws.
Dim role of management authorities
In HCM City, there are 800 operational transaction points serving money exchange, most of which are gold shops. According to the HCM City Branch of the State Bank of Vietnam, if banks want to provide money exchange services, they have to be licenced by the state bank. Meanwhile, gold shops only need to fulfill procedures to become bank agents to be eligible to provide the services.
Under the current laws, violators of the regulations on price quotation and illegal money exchange have to pay a fine of between VND5-12mil. However, the HCM City branch of the state bank has discovered and imposed a fine on only one case so far this year: a home appliance centre in the city.
Explaining this, Nguyen Thi Minh Lan, Head of the Forex Management Division under the HCM City branch of the central bank, said that the thin labour force of the division did now allow it to punish all violators, especially as violations have become spread out.
Le Xuan Nghia, Head of the Banking Development Strategy Department under the State Bank of Vietnam: It is necessary to limit transactions in foreign currencies
The dollarisation has made monetary policies more complicated as there always exist two kinds of interest rates, the rates for foreign currency deposits and loans, and for local currency, which do not always go in the same direction.
A dollarised economy would cause exchange risks for enterprises and commercial banks. The international exchange market always fluctuates as nations all float the exchange rates.
The dollarisation has generated the habit of using foreign currencies in transactions. Therefore, the important measure in order to curb the dollarisation is not to accept deposits in foreign currencies. Most countries in the world do not accept deposits in foreign currencies. In the immediate time, it is necessary to reconsider the licencing of foreign currency trading, strictly ban advertisement and price quotation in foreign currencies. The central bank should raise the required compulsory reserve ratio of foreign currency deposits, a preparatory step to prohibiting foreign currency deposits in the future.
However, all the above mentioned measures need to be carried out on the basis of the controlled inflation. It is very important if Vietnamese people have confidence in the local currency and use VND in payment and savings.
Dao Hong Chau, Deputy Director General of Eximbank: Vietnam needs to build up the prestige of the local currency
The dollarisation will continue if people do not believe in the stability of the VND. Banks now still provide inconvenient services, and as a result, people don’t make foreign currency transactions via banks. A Can Tho-based company has to make payments to a HCM-City based company, and it takes cash to HCM City instead of using banks’ services because it believes that this takes less time.
In fact, the dollarisation not only originates from the demand and habits of the public, but from credit institutions as well. You may see that the information about the VND/US$ exchange rate is always put on the top of thelectronic boards at banks’ transaction points.