Anti-dollarisation: Low Effectiveness

According to the standard of the International Monetary Fund (IMF), a nation is highly dollarised if deposits in US dollar account for more than 30 per cent. Previously, Vietnam always exceeded this level until 2007 when it was 28 per cent - 29 per cent. However, the rate heightened in 2008 - 2009.

 

USD fevers are resulted from imbalanced supply and demand of US dollars for importing and exporting activities. The Vietnamese economy largely depends on exports. Slumping exportation driven by global economic crisis reduces the availability of US dollars on the market. In the first five months of 2009, Vietnam incurred a trade deficit of US$15 billion and US dollars earned from exports failed to meet the spending on imports.

 

Moreover, the interest rate subsidy policy aimed at warding off economic crisis narrowed the gap between interest rate of Vietnamese dong and US dollars. This prompted the people to deposit foreign currencies and borrow Vietnamese dong.

 

Deposits in foreign currencies soared but the lending in foreign currencies dropped. Dollars at banks are large but the supply is limited on the market.

 

Last but not least, with a higher level of dollarisation of the Vietnamese economy, people feel it safer and more convenient to use and keep US dollars.

The Government usually uses to vehicles to deal with foreign currency fevers: a ban on individual trading of US dollars and a fixing of USD base price. Nonetheless, these two instruments are ineffective. Nearly one year ago, a dollar fever sent the USD/VND exchange rate from 15,500 to 18,500 within 10 days, primarily attributed to USD scarcity. At that time, the Government decided to ban individual trading of US dollars and forced to sell the greenbacks at regulated prices. These moves did not cool down the market but stirred up transactions on the black market. When inflation exceeded 20 per cent and the Vietnamese dong weakened, the people shifted to keep gold, real estate and US dollar.

 

According to the new circular issued by the Ministry of Industry and Trade, tagging prices of services, commodities, foreign currencies and gold or collecting foreign currencies from commodities, services and foreign currencies sold will be fined a maximum of VND30 million. The State Bank of Vietnam (SBV) also issued a series of documents to guide relevant organs to impose punitive actions on violations. The central bank sent the Document No. 2878 proposing the Central Committee of Propaganda and Education and the Ministry of Information and Communications to instruct mass media agencies to accept advertisements, price tags of goods and services in Vietnamese dong, except for five subjects allowed to tag prices in foreign currencies in the territory of Vietnam.

 

This solution is highly effective because it clearly provides sanctions on wrongdoers and control over foreign exchange activities on free market. However, the enactment of this document shocks many enterprises familiar with settling payments in US dollars.

 

Big companies and especially companies providing products and services for foreigners are annoyed by this rule. They have to recheck all price tagging and quote their products and services in VND in fears that US dollar may depreciate. Travel firms, airlines and hotels are most hit by this regulation. They have to repeatedly give explanations to their customers for the change in accepted currency. Sellers and buyers have to regularly negotiate prices when the exchange rate changes.

 

However, many companies are operating in accordance with the laws thanks to the information from news agencies, not instructions from the State Bank of Vietnam. Prices in foreign currencies are still quoted on websites of hotels, restaurants and airlines. An enterprise said when they called the hotline of the State Bank, it told us to follow the rule and send queries.

 

Mr Nguyen Minh Phong, Director of Economic Research Department of the Hanoi Research Institute of Socioeconomic and Development, said: Using the domestic currency to quote prices of products and services means observing the currency, preventing dollarisation and assuring consumers. However, it raised certain difficulties for enterprises working with foreigners. Using the local currency to tag prices is only a psychological instrument to reassure consumers but it does not mean to investors because they are still using foreign currencies in their transactions with their customers.

 

It is impossible to change the routine of using foreign currencies in a short time. An effective solution to deal with dollarisation is still open.