Dollar rises to record vs dong on unofficial market

HCMC – The U.S. dollar surged to a new record high of VND20,000 per dollar on the unofficial market on Tuesday and as a result businesses are seeking to hold on to the greenback for fear of foreign exchange risk.

The dollar on the underground market on Tuesday afternoon traded at VND19,980 for buying and VND20,020 for selling, up VND50 from the previous day and VND170 from late last week.

Reportedly rumors that the central bank would continue devaluing the Vietnam dong were behind the dollar rally on the unofficial market on Monday. However, the central bank governor, Nguyen Van Giau, on Tuesday affirmed in Saigon Giai Phong newspaper that there would be no more dong devaluation but his message did not appease the market.

The central bank has yet to take a single move to ease the dollar fervor. Commercial banks on Tuesday quoted the dollar selling price at VND19,500 per dollar although no companies could buy the dollar at that price.

Corporate clients must now pay extra fees to buy dollars at banks, virtually appreciating the dollar versus the dong. 

There are no official reasons for the dollar jump but market watchers said shaky confidence in the local currency had led to volatility on the foreign exchange market, so any rumors could drive the dong down.

When the dong fell to VND20,000 per dollar, the dollar price in futures contracts on Asian markets on Tuesday afternoon was VND19,950 for one month and VND21,520 for one year.

There are signs that enterprises are holding on to dollar funds on their bank accounts. A source from the State-owned bank BIDV told the Daily BIDV’s dollar purchases had dipped strongly recently, because corporate customers declined to sell.

Individuals are also speculating on the dollar, the source said.

According to a report by the central bank’s HCMC Branch by late August, dollar purchases from enterprises accounted for 40% of the city-based banks’ total.

If enterprises had sold the dollar to banks last week, it would have lost VND500 for each dollar. Therefore, no one wants to sell dollars to banks given the continued price increase of the dollar on the unofficial market, the source said.

Meanwhile, companies having dollar debt are rushing to buy dollars for premature payment.

Outstanding dollar loans rose sharply in the first nine months of this year, and in HCMC alone, dollar credit expanded by a whopping 36.4%.

Dollar supply is in decline while dollar demand is sharply up, leading to a sudden imbalance on the foreign exchange market, the source said. However, the source affirmed BIDV could meet all legitimate corporate needs for dollars.

Meanwhile, the general director of a joint-stock bank told the Daily that dollar funds were ample but prohibitively high prices really mattered.

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Unusual cash stocks pressuring Vietnam's dong: WB

An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.

"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.

Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.

The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.

In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.

It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.

Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."

Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.

This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."

But he said it is not easy to say the dong is necessarily overvalued.

In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.

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Unusual cash stocks pressuring Vietnam's dong: WB

An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.

"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.

Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.

The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.

In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.

It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.

Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."

Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.

This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."

But he said it is not easy to say the dong is necessarily overvalued.

In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.

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Japan questions South Korea G20 leadership over FX

TOKYO - Japan called into question on Wednesday South Korea's leadership of the Group of 20 forum because of Seoul's interventions to stem the won's rise and insisted its own currency action was qualitatively different.

The remarks by Japan's finance minister underscored deep divisions over currency policies, an issue that will dominate G20 meetings in South Korea this month and next after a weekend International Monetary Fund meeting failed to make headway.

"As chair of the G20, South Korea's role will be seriously questioned," Yoshihiko Noda told a parliamentary panel when asked about South Korea's currency interventions.

Record low interest rates in rich countries have pushed global investors into emerging markets in search of higher yields, driving up their currencies.

In response, several governments have stepped into foreign exchange markets or tried to curb capital inflows, raising fears of a currency "race to the bottom" that may trigger protectionism and hobble global growth.

Japan itself intervened in the currency market last month for the first time in more than six years to try to stem a rise in the yen that threatens its fragile economic recovery.

Noda drew a distinction between that action and more frequent intervention by South Korea and China.

"In South Korea, intervention happens regularly, and in China, the pace of yuan reform has been slow," Noda said.

"Our message is that we have confirmed at the Group of Seven that emerging market countries with current account surpluses should allow their currencies to be more flexible."

South Korea did not immediately comment on the remarks.

No consensus

Pressure on China to allow its currency to rise faster is likely to intensify but hopes for a G20 consensus look slim.

German Economy Minister Rainer Bruederle was quoted as saying Beijing should make concessions to avoid foreign exchange tensions turning into a trade war.

"China bears a lot of the responsibility for avoiding an escalation," Bruederle told Handelsblatt newspaper.

China's insistence that the yuan's rise must be gradual is a huge obstacle to the appreciation in Asian exchange rates policymakers say is needed to reduce global imbalances.

It, and other countries, counter that the prospect of the Federal Reserve printing money again will flood the world economy with more liquidity, weaken the dollar and push emerging currencies yet higher.

"It'll be impossible for the G20 to reach a consensus on currencies. Many emerging economies feel that they are being forced to intervene because of a weak dollar," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

"China will not succumb to outside pressure."

Minutes of the Fed's last policy meeting showed its policymakers thought easier policy may be needed "before long" to bolster a struggling recovery.

China's chief G20 currency negotiator Cui Tiankai said Beijing was trying to avoid a currency stand-off but that no specific currency should be on the G20 agenda.

"We are doing our best to avoid that," Cui, a foreign vice-minister, said on the sidelines of a conference in Seoul. "But it requires efforts of all the G20 members, not China alone."

U.S. Treasury Secretary Timothy Geithner said he saw no risk of a global currency war but on the need for a stronger yuan, he added: "We just want to make sure it's happening at a gradual but still significant rate."

The major world currency not being talked down is the euro, which rose again on Wednesday, as the European Central Bank ponders a reversal of ultra-loose policy while the Fed is poised to ease further and Japan has already cut rates to zero.

"In the G4 space, the ECB is the only central bank that is talking of an exit policy and that is helping the euro," said Ankita Dudani, G-10 currency strategist at RBS.

Analysts said Tokyo's criticism of Seoul stemmed from its worries about competitiveness. The yen is up about 13 percent against the dollar this year, the won only about 4 percent.

"Japan feels it has been under pressure not to intervene because of G7 (Group of Seven) rules but people outside (of G7) seem to be playing by different rules," said Robert Feldman, chief economist at Morgan Stanley MUFG Securities in Tokyo.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing to act responsibly but acknowledged Tokyo's delicate position.

"I want South Korea and China to take responsible actions within common rules, though how to say this is difficult because Japan has also intervened," he told lawmakers.

Japan sold 2.1 trillion yen ($26 billion) last month to curb the yen's strength versus the dollar. South Korea has intervened to the tune of about $13 billion since late September but analysts said it has acted more aggressively in relative terms.

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Central bank asks for foreign exchange reports

Photo: Tuoi Tre

The State Bank of Vietnam has asked credit institutions to provide reports concerning outstanding loans and investments that involve US dollars.

The State Bank is requesting the information so that the institution can begin drafting a monetary policy for the latter months of the year.

Lenders were also told to draw up plans concerning how they will use their foreign currency reserves to pay debt during this year's final quarter and next year's first quarter.

The report must be completed and delivered to the State Bank this Friday.

By the end of September, total outstanding loans in foreign currencies at banks in Ho Chi Minh City were VND186.1 trillion (US$9.5 billion), up 36 per cent against the same period last year.

The US dollar credit growth during September increased by 6.1 percent against August, while the month-on-month dollar credit growth in August was up just 1 percent against July.

In an unusual move, loans in foreign currencies exceeded mobilized capital. Financial experts explained that banks had a surplus of US dollars that they received from mother companies or foreign credit institutions.

This is the second time the central bank has asked for such reports.

In May, commercial banks and financial companies were ordered to provide a detailed report about their foreign exchange operations to help reduce the country's trade deficit and improve Vietnam's payment balance.

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Japan says further yen gains should be stopped

Foreign exchange broker stand in front of a television screen showing Japan's Finance Minister Yoshihiko Noda speaking to the media in Tokyo September 15, 2010.

Photo: Reuters

TOKYO - Further gains in the yen should be stopped and Japan will maintain close coordination with the US and UN if it intervenes in the foreign exchange market to curb its currency's rise, Japan's foreign minister was quoted as saying.

In an interview with the Wall Street Journal on the sidelines of a U.N. General Assembly meeting in New York, Foreign Minister Seiji Maehara said he did not expect joint intervention involving other countries.

Japan intervened in the foreign exchange market on Sept. 15 to curb the rising yen, which was at 15-year highs against the dollar. It was the first time Tokyo had stepped into the currency market in six years.

Maehara, in excerpts of the interview also published online late on Friday, said the yen had strengthened more than indicated by the actual strength of the Japanese economy.

"So with a very strong determination on the part of the Japanese government, any further appreciation of the yen should be stopped," Maehara, who has no direct responsibility for currency policy, was quoted as saying.

"Going forward, there may be a possibility for the Japanese government to show its very determined intent" to keep the currency from strengthening, Maehara was quoted as saying.

Tokyo would keep its economic partners informed of its actions, he was quoted as saying.

The dollar is trading at about 84.20 yen after falling to a 15-year low of 82.87 yen on Sept. 15, shortly before Japanese authorities intervened to stop yen strength from damaging a fragile economic recovery.

A sudden slide in the yen against the dollar on Friday stirred suspicions Japan had intervened for a second time this month.

But the yen later recovered and Japanese Prime Minister Naoto Kan said on Friday he was unaware of any new market intervention by Tokyo.

Kan, just re-elected as leader of the ruling party, faces a weak economy and a divided parliament, so is keen to be seen as proactive in efforts to curb the strength in the yen, which has hurt Japan's stock market and sparked the ire of exporters.

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