The latest updates show that the foreign currency positions of commercial banks remain at low levels, and no bank has the position of +15-17%, while the allowed level is +30%.

The State Bank only recognises foreign currency abundance when the foreign currency positions of commercial banks are higher than 30% of banks’ capital. Meanwhile, the everyday reports by commercial banks show that there are no worrying circumstances that need the State Bank’s intervention.

An official at the State Bank’s Forex Management Department, who asked to remain anonymous, said that the shortage of foreign currencies, seen in July, had ended and supply was profuse, but this is not enough to conclude that foreign currencies are now in glut.

As the State Bank concludes that a foreign currency excess is not occurring, it finds it unnecessary to intervene in the market. Recently, several commercial banks have complained that the central bank was not buying dollars to ease the foreign currency abundance.

 “The central bank will only buy foreign currencies when the commercial bank’s foreign currency positions exceed the allowed levels,” the official said.

If the commercial banks’ positions are not higher than the allowed levels, but they do not have enough VND, the central bank may interfere by purchasing foreign currencies and providing VND. The scenario, according to the central bank, has not occurred. Most banks say that their usable VND capital is profuse.

The official said that commercial banks should not urge the central bank to buy foreign currencies when their foreign currency positions remain low.

In fact, experts have mentioned a risk that could possibly occur if the State Bank bought foreign currencies. It would have to spend a big sum of VND to purchase foreign currencies, which means a big sum of VND would be put into circulation, thus causing high inflation. Meanwhile, the central bank is trying to issue bonds to withdraw cash from circulation.

The official said that commercial banks had their reasons to fear a foreign currency excess, since foreign capital keeps inflowing into Vietnam in big quantities. However, he said that the high inflow will offset the trade deficit, which reportedly reached $7.6bil in the first nine months of the year.

The fear about foreign currency excess may have originated from bankers’ feelings. The greenback has been devaluating against most of the key currencies in the world, including the euro, Japanese yen and British pound. All these foreign currencies are among the basket of currencies defined by the State Bank of Vietnam which orient Vietnam’s policy on exchange rates.

The bankers may think that the VND will revaluate against the dollar as other foreign currencies have been doing. As a result, commercial banks are trying to reduce the dollar volumes in their safes.

In the long term, this thought by the banks will not exist any more as it is really very difficult to reach the 30% level.

Source: VNECONOMY.