3:26:27 PM | 7/8/2005
Over the past months, international foreign exchange market witnessed sharp increase in price of gold and tumble of the US dollar.
The US dollar has depreciated by nearly 50 per cent against the Euro since the European common currency was put into circulation four years ago. International financial world recently predicted that the US dollar would continue to decline against other hard currencies because it seemed that investors continue to sell out their holdings of the greenback. Central banks of China, Russia and other countries are trying to reduce their proportion of the US dollar and raise the percentage of Euro in their foreign exchange reserve structures. Those central banks and many other investors are also decreasing purchase of US dollar-denominated bonds of the US government. However, it is difficult to bring out a forecast of how much the US dollar will depreciate in the coming time.
Meanwhile, gold prices have reached a 16-year level high of US$451.5 per ounce. With the strong decrease in the value of the US dollar plus instabilities in some regions, financial analysts anticipated that gold prices would soon go up to US$460-US$465 per ounce.
Currently, Vietnam has reduced interventions into the foreign exchange market ahead of further integration into the world’s economy. Moreover, it has to import around 95 per cent of gold for domestic consumption. Hence, every fluctuation of the price of gold, foreign exchange rates and interest rates of hard currencies in the world will cause immediate changes at the local monetary and gold markets. In the past, gold prices and foreign exchange rates between strong foreign currencies and Vietnamese dong have unceasingly increased.
The Euro, Japanese yen and British pound have considerably appreciated against the US dollar and Vietnamese dong so if local enterprises and people who have income sources in the three first foreign currencies and/or save in those monies they will benefit a lot from the forex rate fluctuation. Meanwhile, those who borrow and make payment for imports in foreign currencies (excluding US dollar) will encounter losses. Nevertheless, proportion of import revenues in the three hard foreign currencies is small in comparison to the country's total import revenues. Thus, negative impact of the international forex fluctuation on local enterprises isn't considered a large problem.
Meanwhile, the depreciation of Vietnamese dong against the US dollar was not high (0.76 per cent in January-November - the lowest rate in the same period for years) so it has had little affect on the country’s imports.
Recently, many local commercial banks have provided Euro deposit service for local residents who receive overseas remittance in the foreign currency from their relatives abroad with interest rate equalling to the rate on deposits in US dollars. In the situation that Euro appreciated strongly against the US dollar, local people deposited almost all of their overseas remittance in Euro at local banks unless they had to convert to Vietnamese dong for debt settlement, house purchase or consumption.
Credit institutions in Ho Chi Minh City estimated total outstanding deposits in foreign currencies as at the end of 2004 to reach VND48,800 billion in equivalent (US$3.1 billion), representing a year-on-year increase of 31.9 per cent – higher than the estimated growth rate of deposits in local currency of 27 per cent.
Meanwhile, commercial banks in Hanoi reported total deposits in foreign currencies as at the end of October equivalent to VND57,893 billion (US$3.7 billion), up 14.8 per cent against the end of 2003, compared with growth rate of deposits in Vietnamese dong of 11.2 per cent.
With those above-mentioned figures, it is obvious that Vietnamese people are considering bank depositing as a safe and profitable investment option. Of course, this will help banks refund a huge amount of capital for the development of the country’s fast-growing economy.
The price of gold has risen by over 10 per cent against early 2004, seriously depressing transactions of the precious metal at the local market, with the exception of transactions of jewellery at wedding season. Some real estate traders have changed to carry out payments for their property transactions in Vietnamese dong instead of gold. However, payments in gold for property transactions are still a popular method in Ho Chi Minh City and southern provinces, freezing the realty market.
According to financial experts, from now until Lunar New Year (Tet) festivals, which will fall on February 7-9 next year, the rate of Vietnamese dong/US dollar will stand relatively stable as the greenback is on the downtrend against other hard foreign currencies. Supply of the US dollar will rise considerably thanks to increasing inward remittance by overseas Vietnamese abroad and by international tourists to Vietnam. However, gold price is predicted to further rise and Vietnamese dong will continue to depreciate against other hard foreign currencies. Local money put into circulation in the coming time will increase due to salary hikes, higher allowance and bonuses for civil workers during the Tet festivals and compensation of site clearance for infrastructure projects recently. Interest rates on deposits in Vietnamese dong is forecast to be stable. However, the central bank must be cautious of extraordinary changes of the forex market due to salary hikes and false rumours aiming to fluctuate the price of gold and US dollar at local markets.
Vietnamese
