Two new policies on foreign exchange management by the State Bank of Vietnam (SBV), issued last week, have helped the local currency, the Vietnamese dong, partially regain some of its value against the U.S. dollar after depreciating by five percent.
The SBV, the country’s central bank, released a circular to tighten rules on the trade of foreign currencies in order to bolster its anti-dollarization effort on Friday last week.
According to Circular 15, taking effect on Monday, when conducting foreign exchange transactions with banks, businesses and individuals are required to present papers and documents proving the purpose of the transactions and the amount and timing of the payments.
Those papers and documents are a must for banks to sell foreign currencies for immediate delivery.
The regulation is the next step of the central bank’s effort to reduce foreign currency hoarding, part of the SBV’s anti-dollarization scheme.
On September 28, the SBV cut U.S. dollar deposit rates to 0.25 percent from 0.75 percent per year for individuals and zero percent per year for organizations, a move aimed at increasing the gap in deposit rates between the dong and the dollar, thereby making the local currency more appealing while reducing the dollarization of the national economy.
Commercial banks earlier this week began to adjust the exchange rate after maintaining it at VND22,475 to the dollar, the cap set by Vietnam’s central bank on August 19, right after the dong was devalued by another one percent against the greenback.
On Thursday, the bid and ask price of the U.S. dollar at Vietcombank, usually considered the benchmark for the exchange rate of the greenback after the official one listed by the SBV, was quoted at VND22,350 and VND22,450 to the dollar.
Last month Vietnam depreciated the dong by one percent for the third time this year and widened the trading band for VND-USD transactions from one percent to three percent, a move the SBV made to cope in the wake of the Chinese yuan’s devaluation in August.
All of this activity caused the Vietnamese dong to lose five percent of its value against the greenback.