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Mar 11 2011

Overpowering dollar free market isn’t so difficult

overpowering dollar free market isn%e2%80%99t so difficult

VietNamNet Bridge – The dollar free market has been stagnant for the last several days since management agencies have been applying drastic measures to control the market.  Contrary to previous thoughts, it turns out that it is not so difficult to control the free market.

Foreign exchange dealers do not like… small change

Ha Trung street, the biggest foreign exchange center in Hanoi, has become less crowded and more quiet in the last few days. It is because all the foreign exchange agents on the street have unanimously halted transactions. At noon on March 8, usually the busiest time of the day, all the officers of foreign exchange shops were seen sitting and chatting on the sidewalk and the street. The shops were lit, but there was not a single visitor.

The currency transactions are frozen on the street. Previously, one just needed to call the shops to ask about the dollar price or even negotiate the transaction of large volumes of money of up to tens of thousands of dollars. However, on March 8, no one answered the coming calls, and mobile phones of the owners of the gold and foreign exchange shops were turned off.

It is quite a surprise for Hanoians that the “foreign currency street” in Hanoi has stopped transactions. Why do the foreign exchange agents have to stop transactions if most of them have operation licenses as agents that collect foreign currencies for commercial banks?

The problem that if authorized exchange agents strictly follow the regulations set up by the central bank and commercial banks, they will not make profit. “It will be unprofitable to collect small change. And Hanoi will not need so many foreign exchange agents just to collect small change,” said a man who works for a big agent in Hanoi.

The man said that the situation has become so tense that foreign exchange agents have to stop transactions to listen to the news.  These days management agencies are continuously taking inspection tours to control the transactions at foreign exchange agents. In fact, such tours occurred many times before, but the inspections were not too harsh and did not frighten foreign exchange agents. However, everything is quite different now.

Market control taskforces, banking inspectors and the police have been joining forces to control the transactions at foreign exchange agents. Last week, leaders of the State Bank of Vietnam had a working session with the Ministry of Public Security to discuss what needed to be done to control the free market.

Meanwhile, commercial banks said that their foreign exchange agents have halted transactions because they are listening to the news about performance of the dollar.

A banking expert told VietNamNet’s Vietnam Economic Forum that foreign exchange agents themselves now dare not take on dollars in big quantities, because they cannot anticipate where the dollar price will go.

It’s necessary to remove black market

In fact, many gold shops and foreign exchange shops have operation licenses to work as agents for commercial banks. However, the license is just the “mask” under which they carry out “black market’s transactions”. The foreign exchange shops have big capacity which allows them to trade hundreds or even tens of thousands of dollars at once.

On paper, these foreign exchange shops collect foreign currencies for banks. However, in fact, they do not apply the exchange rates quoted by commercial banks, while they apply the exchange rates set by themselves.

A question has been raised that whether such a network of foreign exchange agents should be allowed to exist. In principle, the agents can act as the “arms” of commercial banks which can help banks to attract more foreign currencies to the banks, especially from tourists. However, analysts say that such a network has become unnecessary when banks themselves have been trying to set up more and more transaction points and branches. Especially, with modern international payment methods, tourists now do not rely much on such networks.

Feb 28 2011

Banks to report state firms’ foreign currency deposits

banks to report state firms%e2%80%99 foreign currency deposits

VietNamNet Bridge – The State Bank of Vietnam on Friday’s evening asked financial institutions and banks to report on foreign currency deposits of state conglomerates by the end of next Friday.

The report will have to cover all foreign currency deposits recorded until the end of this month of 21 state conglomerates and the affiliates.

This is the next move after Prime Minister Nguyen Tan Dung Thursday required major state-owned companies to sell all their foreign currency to banks in an effort to support the beleaguered dong.

Banks would sell them dollars at the official exchange rate when they need them, he said.

The Prime Minister Thursday also approved a series of measures to tighten monetary and fiscal conditions to control inflation and re-balance the economy, after a devaluation and interest rate rises earlier this month.

As the deposit interest rate applied for those state-run group is 1 percent per annum, they do not want to sell their dollar to the banking system unless banks agree to buy it at the free market’s price, around VND1,000 pricier.

Focus on production sector

To limit capital flow into non-production sector, especially the real estate and stock markets, the central bank Friday also asked bank to strictly follow the credit growth cap of 20 percent this year.

The SBV will flexibly raise banks’ reserve requirement and other safe indicators to prevent risky operation and channel capital to production sectors. It will also keep an eye on the purchase of corporate bonds to prevent banks from lifting their highly-charged lending to corporate bond speculation.

It will also be flexible in managing interest rate to cope with inflation and business expectation.

Derivative banking operations and monitoring will also be deployed to put the foreign currency exchange and gold market under control.

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