VietFinanceNews.com – The importance of keeping exchange rates under control to stabilise domestic gold prices in line with the world market has never been more pertinent.
In recent days, gold prices have hit record highs in both Asian and global markets. Vietnam’s gold market has also experienced wild fluctuations, forcing the State Bank of Vietnam (SBV) to import a large volume of gold.
In the current context, soaring gold prices have brought pressure to bear upon the exchange rate between the Vietnam dong (VND) and the US dollar (USD).
According to economists, there are three main factors, namely the impact of the gold market, high foreign currency credit, and growing demand for foreign currency before the end of the year. The current ”gold fever” in the domestic market, in part, contributes to the increasing exchange rate between the VND and USD, even though it remained rather stable in the past three months. On August 24, the Vietnam Bank for Foreign Trade (Vietcombank) announced the exchange rate at VND20,830-20,834/USD, up more than VND30/USD compared to the previous day.
Dr. Le Tham Duong, head of the business administration faculty of Ho Chi Minh City Bank University, says that the recent import of gold has led to an increase in the import surplus and the value of the US dollar.
Dr. Duong says that Vietnam has imported three tonnes of gold despite wild fluctuations in the world market.
Economists say that the foreign currency market is likely to face a difficult time as many businesses have to pay their loans in USD in the coming months.
The SBV’s recent statistics show that foreign currency credit in June rose by more than 23 percent, while VND credit only saw a 3-percent increase.
General Secretary of the Vietnam Bank Association, Duong Thu Huong, says there will be a high demand for USD in the next few months.
Her view is shared by financial specialist Nguyen Tri Hieu, who says that businesses will buy a large amount of USD to pay off their bank loans. They will also borrow USD from banks, change it into VND, and then send the money back to banks to enjoy higher interest rates. As a result, commercial banks will also buy USD to meet the increasing customer demand. All these will raise the value of US dollar.
Stabilising the value of VND
Judging from Vietnam’s overall balance of payment in 2011, which show an estimated surplus of US$2.5-4.5 billion, the SBV has announced its plan to stabilize the VND-USD exchange rate.
Dr. Nguyen Thi Mui, member of the National Advisory Council for Monetary Policy, notes that there is a big gap between supply and demand for USD and Vietnam’s import surplus will remain high. It is essential to keep a balance between supply and demand while restoring investors’ trust in VND, Dr. Mui says.
Many people and businesses are worried about the current trade deficit, high interest rates and foreign exchange rates. To ease their minds, the SBV has purchased over US$6 billion.