Forex market strained as demand overtakes dollar supply

The foreign exchange market has become strained as firms’ demand for dollars has exceeded purchased supplies of commercial banks, forcing many firms to buy the greenback on the black market at higher prices.

The situation has developed over the last three weeks, Deputy Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh said in a report on the SBV’s website. Less than a month after the central bank widened its trading band on March 24 to 5 percent on either side of a fixed daily midpoint from the earlier 3 percent, commercial banks have had to apply both buying and selling foreign exchange rates at the ceiling levels, he said.

Explaining the dollar shortage, deputy governor Binh said dollar supply from exports, foreign direct investment (FDI), remittances and foreign loans has declined due to impacts of the global economic crisis, which has caused worries about dong devaluation, leading to dollar hoarding in the economy.

He also said importers, who need dollars for their payments, preferred dong loans to benefit from the 4-percent interest subsidy and then buy the greenback from banks.

As exporters have deposited dollars instead of selling them and many residents have switched their dong deposits to dollar deposits on dong devaluation concerns, deposits in the greenback increased at an unusually high rate of 3.35 percent in the first four months of this year, the deputy governor said.

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