VietNamNet Bridge – Governor of the State Bank of Vietnam - Nguyen Van Binh, has attributed the dollar price increases recently to the banks’ “unfair play.”

If commercial banks continue the game, the State Bank would have to set higher compulsory reserves. If so, the interest rate vicious circle would appear again.

Commercial banks heats exchange rate up

Explaining the unexpected dollar price increases recently, Binh said commercial banks have redundant capital which they still cannot lend, which has prompted them to improve their foreign currency positions by buying dollars for provisioning or for trade.

“It was the commercial banks which created the dollar price increases, not the market supply & demand changes,” Binh said.

The governor went on to say that if banks continue the game, this would lead to the interest rate increases, which would come contrary to the current policy Vietnam is striving to – forcing the interest rates down.

“The current required compulsory reserves are low, while the liquidity is strong. Therefore, in case the dong/dollar exchange rate is put under pressure, we would have to require higher compulsory reserves,” Binh warned.

“If we do this, the interest rates would be pushed up higher, which would cause biggest difficulties to the national economy,” he said.

Binh, while affirming that commercial banks have been acting as stipulated by the laws, said that they should have been behaving in a more professional way to ensure the optimal benefits for the national economy.

Dollar price increases because of gold demand?

Meanwhile, some experts believe that the dollar price has increased steadily over the last two months not only because of the commercial banks’ move to buy more dollars for trade, but also because of the real higher demand for dollar, which can be seen in the returning of the trade deficit in the last two months.

Nguyen Tri Hieu, a well-known economist, said the State Bank might have to spend a big amount of foreign currencies to import gold. Standard Chartered Bank also believes that the central bank has spent $1 billion to import gold recently.

However, Cao Sy Kiem, a Member of the National Advisory Council for Monetary Policies, doesn’t agree with this, saying that the sum of foreign currencies spent to import gold was not big, which must not be the main reason behind the dollar price increase.

However, he said it was the rumor about the $1billion spent on gold imports which caused the artificial demand for dollar. The rumor made people think that a new decision on the exchange rate adjustment may be released in the time to come.

Therefore, Kiem believes that the dollar price fever would finish once the actual dollar demand turns up.

The “dollar wave” is short wave

The State Bank of Vietnam has affirmed that the dong/dollar exchange rate may fluctuate by 2-3 percent in 2013, but it would be stabilized.

The affirmation can be guaranteed by the forecast about the trade surplus of $12 billion in 2013. The foreign currency reserves have increased sharply as reported by the State Bank. The foreign portfolio investment keeps pouring into Vietnam. It is estimated that the capital has reached $243 million which may increase to $500 million by the end of the year. The figures can show the profuse supply of dollars, which may clear all the worries about the dollar price increase.

Ngoc Son