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Why not dollarize the stock market? (22/01)
06/08/2010 - 27 Lượt xem
Using foreign currencies would help absorb much of the excess that keeps pouring into the country.
Last year foreign direct and indirect investments reached record figures.
And experts say an even higher amount could be invested in the country this year.
In such a hopeful circumstance, providing foreign investors another way of channeling their money into the economy certainly would not hurt.
It would even be welcomed by many foreign entities who, for reasons of their own, find it inconvenient to invest directly in the country.
To encourage more investment in the stock market, the government is thinking about easing State Bank restrictions on commercial bank lending for securities investment.
However, this move is unlikely to work, since knowing the stock market was going through a troubled time, investors would put their money elsewhere.
Allowing the use of foreign currencies for stock transactions could also result in more domestic investors using foreign currencies, and consequently attract a large chunk of foreign currencies still floating around in the economy.
This would also save the government from having to spend a large amount of dong to buy dollars to increase foreign reserves in an attempt to stabilize the dong-dollar exchange rate.
As for other solutions that seek to reduce the “supply side”, they would likely harm the stock market in the long run.
For instance, reducing initial public offerings, or IPOs, essentially means slowing down the equitization process.
Minimizing the issuance of extra shares of listed companies would also hamper companies’ efforts to attract long-term investments.
All this is not to say that the use of foreign currencies on the stock exchange would not have its own price, since as economists are fond of saying “there is always a trade-off”.
This solution just seems to have a cheaper price than other alternatives.
