Lowering USD Deposit Interest Rate to Fight Dollarisation

"This measure should be in action immediately as it has no negative impact on the monetary policy. In contrast, it will be more beneficial for the economy and enterprise systems, and act as a prerequisite for lowering interest rates," Mr Hai analysed.

 

According to Mr Hai, in preparation for the next step, right from this point, the State Bank should direct “Charging high fee on foreign currency deposits" for those who either deliberately hold foreign currency or have no demand for using foreign currency in the short term.

 

For residential areas, according to VAFI, USD deposit interest rate can be controlled and reduced from three percent per year to one percent per year, at the same time considering to increase the rate of foreign currency reserves at a reasonable level so that commercial banks cannot cross the line when competing to attract dollar deposits. The next step is to reduce the interest rate to zero percent per year. For most USD depositors, one percent or zero percent does not make much difference in benefits. Finally, fees on foreign currency deposits will be charged.

 

Currently, there is the view that if USD interest rates continue to fall at the mentioned rates, the amount of overseas remittances to Vietnam will be reduced. VAFI said that this claim has no basis because the cost of illegal foreign currency transfer from Vietnam to foreign countries is about two percent. This fee, plus the risk of losing the entire capital, will probably prevent anyone from doing this.

 

"At present, it is very favourable for the State Bank to act quickly to shorten the elimination process of dollarization and achieve the objective of putting an end to raising capital and lending in foreign currency,” Mr Hai confirmed.