VietNamNet Bridge – The official exchange rate fluctuation in recent days isnot the thing experts are worried about. However, they have expressed the doubtsabout the feasibility of the government’s plan to curb the exchange ratefluctuation at below one percent by the end of the year."/>VietNamNet Bridge – The official exchange rate fluctuation in recent days isnot the thing experts are worried about. However, they have expressed the doubtsabout the feasibility of the government’s plan to curb the exchange ratefluctuation at below one percent by the end of the year."/>

Experts say it’s impossible to keep exchange rate fluctuation at below 1%

12:00 AM @ Monday - 01 January, 1900

VietNamNet Bridge – The official exchange rate fluctuation in recent days isnot the thing experts are worried about. However, they have expressed the doubtsabout the feasibility of the government’s plan to curb the exchange ratefluctuation at below one percent by the end of the year.


Prior to October 5, the interbank dong/dollar exchange rate announced every dayby the State Bank of Vietnam always stayed at 20,628 dong per dollar. However,since October 5, the State Bank has continuously raised the interbank exchangerate to 20,638 dong, then to 20,648 dong, and to 20,653 dong per dollar onOctober 7.

Commercial banks have immediately raised their quoted exchange rates to theceiling levels, while the gap between the sale and the purchase price has beennarrowed. In many cases, the actual dollar prices applied in transactions werehigher than the quoted prices.

Commenting about the move by the State Bank to raise the official exchange ratecontinuously over the last few days, Dr Le Tham Duong from the HCM City BankingUniversity, said that the increases have been insignificant which should be seenas an adjustment to “explore the situation”.

Regarding the statement by the State Bank of Vietnam that the exchange rate willnot fluctuate by more than one percent from now to the end of the year, Duongsaid that this shows the determination to keep the exchange rate stable. Thecentral bank has every reason to believe that the goal is attainable: Vietnamhas the foreign currency reserves worth 16 billion dollars, the surplus inpayment balance, the positive position of foreign currencies of commercial banksand the controlled outstanding loans in foreign currencies.

However, Duong said, “the exchange rate may bear the influences of manyunforeseen factors.”

One of the “unforeseen factors”, according to Duong, is that despite thedetermination to force the foreign currency lending (the required compulsoryreserve ratio for deposits has been raised), the outstanding loans in foreigncurrencies keep rising. Meanwhile, the gold prices have been fluctuating heavilywith the domestic prices always higher than the world’s price. This will promptgold smuggling, which may push the dong/dollar exchange rate up.

He went on to say that the forecast bad performance of the world’s economy wouldalso have bad impacts on the Vietnamese economy and made the plan to congest theexchange rate fluctuation impossible.

“The pressure on the exchange rate seems to be bigger than the determination andthe strength of the central bank. Therefore, the State Bank needs to keepcautious, or the dollar price would increase, thus badly affecting the plan tofight against the inflation,” Duong said.

Le Dang Doanh, a well known economist, has also expressed his worries that thecentral bank may fail to implement the plan to control the exchange ratefluctuation.

Doanh said that the foreign currency supply and demand much depends on theimport and export, while Vietnam still imports more than exports. Meanwhile,Vietnamese enterprises have borrowed a big amount of dollars (they prefer dollarto dong loans because the dong interest rates are overly high), which would puta hard pressure on the exchange rate.

Also according to Doanh, the dong has lost 22 percent in its value in reality,but the currency still has been overvalued, which is not beneficial for export.

“It is necessary to force the inflation rate down to keep the exchange ratestable. It will not have much significance if we try to keep the exchange ratestable in the context of high inflation,” Doanh said.

Dr Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, alsosaid that the pressure on the exchange rate is hard. The outstanding loans inforeign currencies have reached 30 billion dollars, while the mobilized capitalhas been 22.5 billion dollars only, which means the gap of 7.5 billion dollarsbetween the lent and the mobilized money.

“7.5 billion dollars is not a big sum, but it would be dangerous if all theloans become mature in the last three months of the year,” Nghia warned.

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