A foreign exchange clerk at a joint stock bank in Ho Chi Minh City’s District 1 said over the past two days, he had received fewer customers coming to sell dollars.

He said because banks have been offering higher interest rates on dollar deposits, and the greenback is gaining in strength, people are less likely to part with their dollars now.

The value of the US dollar has been causing headaches for exporters over the past few months.

But the problems they were experiencing were a result of the low value of the dollar against the dong and banks’ reluctance to exchange dollars for dong.

Dollar shortage

After falling for weeks against the dong, the dollar suddenly rebounded, catching bankers and businesses by surprise.

In just one day, the Vietnam Commercial Bank (Vietcombank) increased its offer for the greenback by an extra 100 dong, paying VND16, 090 for every dollar it bought on Friday.

On the open market, every dollar fetched an additional VND150, with the dong/dollar exchange rate crossing VND16,300 per dollar in HCMC and VND16,270 per dollar in Hanoi.

Some attributed the greenback’s sudden strength to declining supply.

A deputy director of a state-run bank, who wished to remain unnamed, said a depreciating greenback and low interest rates offered on dollar loans lately had encouraged businesses to borrow in dollars.

Meanwhile, low interest rates on dollar deposits - from 5 to 6 percent per annum lower than dong deposit interest rates - had discouraged people from depositing in dollars.

Businesses’ over-borrowing and under-saving from the public have thus left banks scrambling for the greenback – and vying with each other to raise interest rates on dollar deposits.

On Monday, Export and Import Bank (Eximbank) raised its interest rates by 0.2 to 0.3 percent per year.

Two days later, Asia Commercial Bank (ACB) increased its rates by 0.15 to 0.35 per year, with the 12-month-term interest rate reaching 6 percent a year.

Southeast Asia Bank (SeABank) is offering up to 6.9 percent per year in interest rate on its dollar deposits.

To prevent the dollar interest rate race from spiraling out of control, Vietnam Banks Association has agreed on a 6 percent per year cap, to take effect on April 2.

Some however are worried that the cap will be difficult to enforce.

In the meantime, demand for the greenback is coming in from several quarters.

The central bank, which has been buying dollars from commercial banks, has also asked the commercial banks to buy dollars from local exporters.

Earlier, when the dollar was losing in value, exporters had found it hard to exchange their dollars for dong to reinvest.

At present, though, many are hesitating to sell dollars as they expect the value of the US currency to climb further.

Importers who have seen rising prices of imports, especially oil, also need more dollars.

An importer said when he approached a bank to buy more than US$17,000, he was told to buy euros which the bank would later exchange for dollars.

The double transaction meant the importer would have to pay VND16,351 for every dollar he bought, rather than the bank’s lower listed exchange rate of VND16,120.

The bank explained that since it was facing such a dire shortage of dollars, it had to find ways to actually sell them at a higher price than what was quoted.

Dong A Bank’s President Tran Phuong Binh told Tuoi Tre newspaper the country’s growing trade deficit, expected to hit $20 billion this year, might also push up the value of the dollar.

In the first three months of this year, the trade deficit was $7.3 billion, compared with $12.4 billion for the whole of last year.

The US Federal Reserve, which has recently cut interest rates by 75 basic points, may also take additional steps to help boost the sinking American economy, strengthening the greenback against global currencies.

Source: Thanh Nien