Bankers urge forex transparency in Vietnam
HANOI - Inconsistencies running through
Vietnam's foreign exchange market
need to be addressed and greater
transparency introduced, bankers
said.
The key concern was that no official
explanation had been given to banks
on the method of setting the daily
value of the dong currency, which is
widely seen as being overvalued by
15-20 percent.
Some banks have requested
information on the process but
received no answer.
In late February the government said
it would set the official dong/dollar
level by averaging rates from the
previous day's interbank
transactions.
Under the ruling, dong/dollar
exchange deals could be executed
within 0.1 percent of the official rate
each day, something officials have
privately said would allow the
currency to gradually trade
downward to a more realistic level.
But since the new de-facto sliding
peg regime was introduced the
official rate has fallen a mere 15 dong
to 13,895 against the U.S. dollar.
The currency has been devalued by
around 20 percent in three
downward adjustments since late
1997.
One banker said some foreign banks
had executed a number of large
transactions on the interbank market
in the past month at the bottom of the
0.1 percent band but that these had
failed to influence the next day's rate.
He added that since these
transactions were greater than the
central bank's average daily
interbank market value, questions
were raised over the transparency of
calculating the average interbank rate
based on deals from the previous
day.
John Bentley, a United
Nations-sponsored senior legal and
investment adviser to Hanoi, said last
week that Vietnam should abandon
trying to regulate its forex market and
float the dong.
``I believe these controls reflect a
policy to maintain an over-valued
exchange rate, and this is disastrous
for the development of the country,''
he said.
Foreign bankers complained that
while dollar liquidity was acceptable,
Vietnamese banks -- large state
commercial institutions in particular
-- were restricting access to the local
currency.
``We are still in the hands of the
willing state-owned banks to give us
access to dong funding,'' one banker
said.
He added that some Vietnamese
banks were, for the first time,
beginning to offer fixed-rate longer
term dong funding to customers for
periods of around two to three years,
but said that foreign banks, which
have no access to dong, were being
excluded from the trade.
``Foreign banks would like to be
able to compete and offer this in the
market as well,'' the banker said.
But the central bank and
communist-led government were
wary of increased competition from
foreign banks, he added.
``There's still a protective element in
the whole issue and the best way for
the central bank to control the
growth of the foreign banks is by
controlling funding,'' the banker said.
Reuters - May 4, 1999.
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