The governor of the State Bank of Vietnam (SBV) decided last week to expand the margin of the VND/USD applied to credit institutions compared to the inter-bank exchange rate from ± 0.25% to ±0.5%.
Talking with a Sai Gon Giai Phong reporter yesterday, Truong Van Phuoc, head of the SBV’s Foreign Exchange Management Department, said that the decision to expand the margin was made to make the country’s exchange rate mechanism more flexible.
For instance, when a company earns US$1 million from export activities, if the company doesn’t want to sell US$1 million at the rate of VND16,000 per dollar, it can convert the money into 800,000 euro to sell at the rate of VND21,000 per euro.
The SBV has permitted several banks to conduct option services on a trial basis since mid-2006 allowing individuals to sign currency option contracts with credit institutions. The option services are expected to help avoid losses incurred from exchange rate fluctuations.
Recently, the SBV has applied a negotiated exchange rate between the US dollar in cash and VN dong, meaning that banks which are permitted to buy US dollars are not bound by inter-bank exchange rates and rate margins.
Reporter: Why did the bank wait until now to expand the exchange rate margin?
We had to choose between using economic tools and an administrative solution. In the end, we chose the economic tools as other countries have done.
As an exchange rate system becomes more and more flexible, the role of exchange rate margins decreases. Expanding margins, therefore, is only a minor measure.
What is the forecast for the VND/USD exchange rate? What impact might it have on the market in 2007, especially the export sector?
The real question is how the US dollar will increase or decrease compared to other currencies in the “currency basket”.
The interaction between the US dollar and other currencies will provide some idea of how things will pan out later on in Viet Nam.
Many economic forecasters predict that the price of US dollar will continue to drop this year.
The expansion of the exchange rate margin will not cause big changes since it is no longer important now.
In the present context of capital rotation which is performing well now, the biggest concern is how to prevent the dong from increasing since this would have an impact on the competitiveness of the country’s economy.
The dong is no longer related exclusively with the US dollar, but is connected to the currencies of many nations who have relations with Viet Nam in terms of foreign affairs, investments, and loans.
| Yesterday, two days after the State Bank’s decision to expand the exchange rate margin, there is almost no fluctuation on the market. The exchange rate of VND to USD was VND16,070 per US dollar on the free market in Ha Noi yesterday afternoon and VND16,051 per US dollar at the Bank for Foreign Trade of Viet Nam. Both rates were lower than the average found on the inter-bank foreign currency market which was VND16,101 per US dollar. |
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