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The Vietnam News

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Vietnamese prefers to keep the dong than US dollar

A slew of banks recently have restricted the purchase of US dollar in cash, particularly Vietnam Eximbank saw the situation that its customers withdrew US dollar to send money in dong. Due to the sharply increasing US dollar purchase, banks only give priorities to exchange US dollar for customers at airports, seaports and train stations. However, the purchase is not modest at about US$5,000-7,000 a day for each exchange agent because this depends on the lending activity.

According to Eximbank, if not selling US dollar right after purchase, a big loss will be at high risk due to the consecutive depreciation of US dollar against the dong. However, no one buys US dollar at the moment while the payment demand for import export is increasing strongly. Some banks purchased US dollar at a negotiated price, leading to the situation that US dollar sellers were compelled to accept a low selling price to exchange agents due to price pressure. Because of the foreign currency glut, banks now list the US dollar price at a floor level.

At present, a lot of enterprises complained about Asia Commercial Bank's fee collection of 121 dong a US dollar for the exchange of foreign invested companies without given notice. Concerning the complaint, Ly Xuan Hai, general director of ACB confirmed that his bank is collecting "administration and calculation fee" for US dollar exchange. Regarding the fee of 121 dong a US dollar, Hai added, which is applied differently at each different time. Factually no fee was collected some times. The fee is applied on both foreign currency exchange and other methods such as the dong input.

The US dollar deposit rates currently increase thanks to the long-running depreciation of US dollar against the dong. In previous years, US dollar holders wanted to send money at banks and expected his capital being secured through the steady increase in the dong and greenback forex rate that some times grew by around 10% a year. However, during some recent years, the forex rate only was up by 1% a year, which made US dollar holders feel dispirited. Especially, the recent reduction in dong/US dollar exchange rate damaged US dollar holders. With such a sum of money, if sending the dong at banks, profit will double. Thus the US dollar deposits at banks are tending to drop gradually. While the US dollar capital declines, the demand of capital in dong is going up. Enterprises take advantage of the current situation to borrow capital in US dollar to avoid the rising storm of dong deposit rates. US dollar lending rate now stands at 8% a year, equalling to half of the interest rate of dong loans. Not like previous period, at that time enterprises dared to borrow dong without the fear that dong/US dollar forex rate could soar in the future. Some others gained a little profit from the recent reduction of the forex rate because they previously spent less than 16,000 dong on buying a US dollar to pay bank debts while the dong/US dollar at that time was 16,200 dong per US dollar.

Several banks reported transferring hundreds of millions of US dollar from foreign countries to provide US dollar loans in the domestic market due to the world market's US dollar interest rate tumbled strongly whereas the domestic demand was in the upward trend. Factually, Vietnam's US dollar deposit rate now is also higher two times over the world's average. Whether should we take advantages of the situation to buy US dollar to send at banks with a high interest rate? The calculation is only matched with foreigners bringing US dollar to send in Vietnam. As for local depositors, keeping the dong is better than US dollar. With the current forex rate of circa 15,930 dong a US dollar, investors have to spend 159.3 million dong to have US$10,000 deposit at an interest rate of 6% a year. After one-year term, the collectable profit will be US$600 equalling to 9.55 million dong. However, investors can loss if the forex rate declines deeper. It is supposed that the forex rate plunges to 15,500 dong a US dollar in one-year, the collectable profit will be 9.3 million dong only. In addition, they also will suffer another loss if wanting to exchange the deposit of US$10,000 into 155 million dong for consumption purposes. By that time, their capital will shrink by four million dong.

Meanwhile, with a 159 million dong deposit, the collectable profit will be 19 million dong, a two fold increase than US dollar. Based on this, the majority of depositors select the dong.

Tuoi Tre - March 7, 2008.