On July 21, the dollar buying and selling prices quoted by commercial banks were still at the official ceiling of 17,812 dong per dollar.  Under the current regulations, the ceiling price is set by the official exchange rate announced daily by the State Bank of Vietnam plus or minus the trading band of five percent. 

However, bankers all said that no businesses or individuals would agree to sell dollars to banks at the quoted prices. And of course, banks did not have enough dollars to satisfy the demand of all clients. 

The work-arounds 

Currently, banks and businesses have three ‘methods’ of selling and purchasing dollars. 

First, businesses buy dollars on the black market at high prices and then ‘regularize’ the money.  Black market dollars are now 18,340-18,350 dong per dollar on the black market, or 700 dong per dollar higher than the rate quoted by commercial banks. 

In another ‘method’, banks agree to purchase dollars from a client for more than the official level and then regularize the deal by reducing the fees of other services for the client.  Similarly, when banks sell dollars, they sell them at higher than allowed price levels and then regularize the deal by raising fees for other services. 

However, the second method has not been used by many banks since the State Bank of Vietnam started a strict inspection of banks’ foreign currency trading activities. 

The third and safest method is that banks act as intermediaries, connecting buyers and sellers. The sale and purchase prices are written down in the contracts at the allowed levels, while the sellers and buyers have to settle an additional fee between themselves. 

The banks’ dilemma 

Commercial banks deny that they have deliberately created difficulties for businesses. 

A senior joint stock bank official told Lao Dong newspaper that banks cannot get any profit when they sell dollars at prices above the ceiling levels. Banks can only profit from the spread between the sale and purchase prices, and only if the dollar supply and demand is stable.  Currently, banks cannot profit by a spread, for there is none.  

Nevertheless, he said, banks still have to try to find dollars to sell so they can retain clients.  It is risky; the banks will be strictly punished if they are discovered by the central bank to be selling dollars at prices higher than the ceiling levels. 

A lot of banks have restricted the opening of letters of credit for import companies due to the dollar shortage.  

Lao Dong interviewed Associate Professor Dr Tran Hoang Ngan, Deputy Rector  of the HCM City Economics University.  Ngan, concurrently a member of the National Advisory Council for Monetary Policies, said that the dollar shortage is just a problem in certain areas. 

Lao Dong Daily: The Government and State Bank of Vietnam have confirmed that the supply and demand of foreign currencies is still in balance.  Why do businesses keep complaining that they cannot purchase foreign currencies? 

Ngan: Overall, the foreign currency supply and demand remains in balance. The supply of foreign currencies from overseas remittances, foreign direct investment and official development assistance (ODA) are big enough to offset the trade deficit. In the first six months of the year, our balance of payments was even in surplus.  

However, shortages still occur because dollars are being hoarded in many sectors, at businesses, banks and among people. The reason behind the dollar shortage is people’s anticipation of further dollar appreciation.  The State Bank must resolutely stabilize the exchange rate to overcome this expectation. 

LD: What should the Government do to ease the dollar shortage? 

Ngan: It is really a difficult task. I think that the State Bank needs to open an ‘investigation’, requiring commercial banks to report voluntarily about their foreign currency positions and about businesses’ hoarding dollars. The result of the ‘investigation’ will show the bank how to set up reasonable policies. 

If necessary, I think that the State Bank of Vietnam should not just give unofficial guidance, but should set a regulation that forces exporters who have earnings in dollars to sell dollars to banks at the legal exchange rate. The Foreign Currency Management Ordinance stipulates that the State Bank of Vietnam can set up regulations necessary to ensure Vietnam’s monetary security. 

To find out if the foreign currency supply and demand is really in imbalance, it is necessary to seek to understand why companies need to purchase dollars and which products they import. In the current circumstances, we cannot promise to provide enough dollars for the import of luxury goods.