Vietnam's forex market unfazed by dollar surge on unofficial channels

The dollar price has remained above the VND25,000 mark since mid-February this year and has shown no signs of cooling down.


The current sharp appreciation of the US dollar against the Vietnamese dong on the unofficial market has not affected the stability of the Vietnamese foreign currency market, experts believe.

On the unofficial market, the dollar price on Wednesday hit record high of VND25,480 and VND25,600 per dollar for buying and selling, respectively, an increase of VND110 and VND140 compared to the previous session.

The dollar price has remained above the VND25,000 mark since mid-February this year and has shown no signs of cooling down.

The sharp surge has increased the gap of the dollar price on the unofficial and official markets to some VND1,000 per dollar.

On Wednesday, the State Bank of Vietnam (SBV) listed the central rate for the dong at VND24,017 per dollar. With the current trading band of +/- 5 percent regulated by the SBV, commercial banks on the day quoted the rate at around VND24,510 per dollar for buying and VND24,850 for selling.

Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council, attributed the surge to the European central banks having not yet reduced interest rates and possibly keeping the rates at high levels.

The dollar price surge on the unofficial market is also because of an acceleration of the gold price. According to statistics from the World Gold Council, in recent years, Vietnam has consumed about 50-60 tons of raw gold yearly while the country can exploit only 2-3 tons of raw gold yearly. Thus, almost all of the raw gold for domestic production and business come from imports worth billions of dollars yearly, but most of it is from unofficial routes, including smuggled imports.

In particular, in recent times, the domestic gold price has often been VND13-20 million per tael higher than the world gold price, which has promoted smuggling and caused the dollar price on the unofficial market to increase sharply.

Additionally, the dollar price hike has been driven by increasing import which saw a growth of 18 percent in the first two months. When imports increased, the dollar demand also rose, causing the dollar price to surge.

Another reason is the decline in savings interest rates, which now stand at a low of 5.5 percent for 12-month deposits. This has led people to withdraw their savings and invest in alternative channels, including foreign currencies, contributing to the rise in the dollar's price.

Despite the dollar price surge on the unofficial market, experts said it does not affect the stability of the domestic foreign currency market.

Dinh Duc Quang, independent director of the United Overseas Bank, said despite high fluctuation, transaction volume in the unofficial market is very small compared with the total foreign exchange market. Almost all dollar transactions, which serve the needs of im-export, foreign debt repayment, overseas investment and legal individual transactions such as studying and traveling abroad, are conducted through the official market or the banking channel. Consequently, fluctuations in the unofficial market do not exert pressure on the stability of the country’s foreign currency market.

However, experts noted, the sharp fluctuations of the dollar on the unofficial market can still cause concern for investors and firms.

The State Bank of Vietnam (SBV) has so far this year affirmed the goal of keeping the foreign exchange rate stable. Monetary policies and other measures will be synchronously managed to stabilize the forex market, contributing to inflation control and macroeconomic stability, the SBV stated.

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