VINACHEM

VietNamNet Bridge - The local foreign exchange market has begun to show positive results, following the State Bank of Viet Nam's circular which came into effect on July 1.

The bank ordered major State-owned economic groups and corporations to sell US$376 million in reserve to the commercial bank system in order to reduce the accumulation of dollars in the economy.

After the directive was initiated, all groups and State corporations had to sell foreign currency to the credit institutions, a move which will certainly cause an increased supply of foreign currency and positive impact on the exchange rate.

As a result, the inter-bank exchange rate remained at VND20,618/$ last Friday. The difference between buy and sell rates is VND20,540 to VND20,610/$, down by VND10 per US dollar compared to June 30. The selling of US dollars in reserve will not only help stabilise the foreign exchange market and increase supply, but also push back against US dollar transaction on the free market.

The central bank reported that in June, capital raised in foreign currency fell 3.62 per cent against the previous month, as both individuals and businesses sold US dollars to commercial banks at low deposit rates of foreign currency. Foreign currency credit was 2.34 per cent higher in June than in May.

Between July 1 and 7, firms must report their aggregate demand for foreign currency for the month—so as to hold their balances from both non-term and term deposits—while the remainder must be sold to commercial banks.

Dr Nguyen Thi Mui, a member of theNational Financial and Monetary Policies Advisory Council, said that the transaction of foreign exchange between enterprises and commercial banks would provide a significant source of foreign currency for the country.

The Ministry of Planning and Investment said it was an achievement of the last six months that the foreign currency market and exchange rates were finally stable. Banks have already acquired a large amount of foreign currency from residents and enterprises.

Exchange rates of foreign currency markets tends to reduce and stabilise at a lower level than the ceiling rate permitted by the State Bank. Foreign exchange reserves are gradually being improved.

The State bank already bought an additional amount of nearly $3 billion for the country reserves, according to Ministry of Planning and Investment.

However, many experts warn that the State Bank must continue to sell foreign currency to businesses as needed.

Source: VNS