VINACHEM

Regulating the use of dollars in the banking sector is again in the news after overseas deposits of the greenback by Vietnamese entities, mostly banks, have skyrocketed.

According to the Việt Nam Institute of Economic and Policy Research, the overseas deposits, previously negligible, had surged to $7.3 billion at the end of the third quarter of last year.

This was believed to have been caused by the State Bank of Việt Nam (SBV)’s policy tightening with respect to banks’ foreign currency transactions.

To stabilise the forex market and reduce dollarisation in the economy, the central bank has applied several measures in recent years to prevent speculation in and hoarding of dollars.

One of the most important of them was to ban banks from offering loans to companies in any other currency except the đồng.

Only companies in need of foreign exchange to pay for imports of goods and services are allowed to borrow in dollars.

The central bank also decided to reduce interest on dollar deposits to zero per cent.

These were aimed at making banks switch from accepting dollar deposits and lending them to buying and selling the greenback.

The efforts have paid off, with the forex rate as well as market becoming rather steady and helping the Government keep a lid on inflation.

But other problems have cropped up.

Since the interest rate was cut to zero, dollar deposits at banks have slumped, threatening their liquidity.

As a result, many banks have been illegally offering interest of 0.5-1 per cent.

The zero interest rate policy is also blamed for a foreign currency drain as banks that are sitting on large dollar reserves, companies possessing the greenback and even individuals are looking for ways to deposit them abroad to make profits.

This is paradoxical since many companies and even banks lack dollars for their business activities, and are forced to borrow from foreign banks at high interest rates.

Many analysts said that the central bank’s decision to bring down dollar deposit interest rates to zero is not appropriate since the country does not have a foreign currency market where US dollar trading is carried out smoothly and efficiently.

But the fact that some banks park their foreign currencies abroad to enjoy profits irks some, who think “it is not fair”.

But banking experts and the State Bank of Việt Nam dismiss this saying it is the normal practice of banks.

Some analysts called for going back to old policies and allowing banks to mobilise foreign currency deposits and lend them.

Some others urged the central bank to review and tweak its policies to make them win-win for all concerned.

One of their suggestions was to extend the de-dollarisation roadmap to ease the burden on businesses.

The process has been too rapid in recent times, they said, adding that the central bank should rethink certain aspects, including the zero interest rate policy.

The country needs large amounts of foreign exchange because most industries rely on imports for raw materials and feedstock, they pointed out.

But the central bank seems to be unmoved and determined to go full speed ahead with the de-dollarisation, instructing banks to scrupulously comply with foreign currency-related policies.