Bulk of foreign currency supply to stabilize forex in 2011

Financial experts are confident that the foreign exchange rate will be stable in 2011 thanks to the huge foreign currency supply and the central bank’s more flexible monetary policies.

Despite the dollar against other currencies weakening around 10 percent due to the US’s loosening monetary policies, the greenback remains pretty stronger than the Vietnam dong, analysts said.

“The dollar is getting stronger on residents’ speculation, widening trade gap and acceleration inflation,” said a financial expert in Ho Chi Minh City.

The dollar supply this year is relatively abundant thanks to the increase in foreign direct and indirect investments, healthy export turnover and foreign-owned lenders raising their chartered capital to meet with the central bank’s regulation, he said.

Prime Minister Nguyen Tan Dung has approved the proposal requiring local lenders to raise registered capital levels to VND3 trillion (US$153.9 million), by Dec. 31, 2011, the State Bank of Vietnam said on its website.

Commercial lenders took a breath of relief on the fact that the central bank extending the deadline to raise registered capital by one year to ease pressure on banks having difficulty meeting higher requirements.

Foreign-owned banks, meanwhile, are in a race to either reduce the outstanding credit or add more capital in an attempt to meet the new requirement, experts said.

Statistics show overseas remittances to Vietnam reached a record high of more than US$8 billion last year, an unexpected increase of 25.6 percent over 2009.

Remittances to Vietnam more than tripled from 2001 to 2008, when it reached $7.2 billion. But due to the global economic crisis, the flows fell 13 percent in 2009 to $6.3 billion.

According to a World Bank report in November, Vietnam ranked third among the top 10 remittance recipients in East Asia and Pacific, after China and the Philippines. Worldwide, the top recipient countries in 2010 were India, China, Mexico, the Philippines, and France.

However, the gap between black market and official rates for the dollar is still too large to draw dollar remittances into banks, Tran Van Trung, director of the Dong A Money Transfer Company, said.

“If we narrow the gap, people will be eager to sell dollar to banks, instead of gold shops,” Trung said.

The State Bank of Vietnam proposed that some imported products should be bought by other currencies including EUR and Yen in an attempt to narrow the trade deficit, which is among the main causes affecting the foreign exchange rate.

Importers buying luxury products including cars and perfumes from abroad will have to pay by other foreign currencies, instead of dollar.

By Thanh Thien – Translated by Hoang Anh

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