The Government has stated that it will not adjust the dong/dollar exchange rate until Tet. Will the statement be effective after Tet?

The Government has emphasized that the top priority task for 2011 is to stabilize the macro economy with two important duties: stabilizing the goods’ prices and reducing the interest rates. The statement allows us to predict that the Government will follow the policy on stabilizing the foreign currency market. If necessary, it will adjust the exchange rate flexibly in accordance with the changes in the market. Therefore, it is difficult to say when the exchange rates will be adjusted.

The State Bank of Vietnam always says it adjusts the exchange rate flexibly in accordance with the changes in the marketHowever, that“flexibility”  was not there in 2010?

I think that the exchange rate policy at this moment needs to be more comprehensive. We need to adjust the required compulsory ratios for Vietnam dong and foreign currency deposits. In principle, the compulsory reserve ratio on foreign currency deposits must be higher than that on Vietnam dong deposits. A reasonable gap between the two will help increase the prestige of the local currency and help ease the pressure on the exchange rate.

Meanwhile, the interest rates of foreign currency deposits must be low in comparison with the dong interest rates, while the lending interest rates in foreign currencies must be high. The State Bank can also intervene in the foreign currency market as the final buyer and seller.

Some experts believe that it is necessary to resume some policies in order to make the exchange rate “more flexible”. Do you agree with this?

The current exchange rate mechanism that we are pursuing seems to have become backward given Vietnam’s deeper integration into the world. In the medium term, I think we should shift to the mechanism of “controlled floating exchange rate” instead of the current mechanism, under which the market exchange rate is controlled by trading bands

Five years ago, Vietnam applied the mechanism that you have mentioned, the “controlled floating exchange rate”

It is true. The application of derivatives such as swap, forward, futures and option will automatically become necessary when we diversify the currencies for making payment, and especially when applying the “controlled floating exchange rate” mechanism.

Statistics showed that the foreign currency credit growth rate was very high in 2010. Do you think that the sharp increase in the foreign currency outstanding loans had big impacts on the exchange rate?

The overly high growth rate of the foreign currency credit in 2010 reflected the problems of the interest rate system. This should be seen as a lesson for the interest rate and exchange rate management. The consequence is that the demand for foreign currencies increased sharply when loans became matured and enterprises had to collect foreign currencies to pay debts.

In general, banks should only lend foreign currencies to exporters, because they have earnings in foreign currencies to pay debts. However, many importers also tried to get loans in foreign currencies.

Petrolimex, the biggest petroleum distributor, said that in 2010, they had 5-6 trillion dong kept on their bank account. However, they could not buy dollars from banks and they had to borrow elsewhere. You see, not all importers want to borrow in foreign currencies.

But Petrolimex has borrowed foreign currency already. This may lead to two risks, the exchange rate risk and the risk of bad debts. I believe that it is now the right time to apply comprehensive measures to narrow the gap between the official exchange rate and the exchange rate on the black market.

Source: Thoi bao Kinh te Saigon