Dollarization domination

Dollarization in Vietnam is estimated by the State Bank of Vietnam at 21%, relatively high when noting that the figure is 9% in China and 1% in Thailand. Nguyen Dong Tien, Deputy Governor of the State Bank of Vietnam, discussed how serious dollarization is in Vietnam and how to fix the problem.

He said that the Government has asked the State Bank of Vietnam (SBV) to draw up a master plan on reducing dollarization. The plan needs to improve the convertibility of the VND and the value of the VND in international transactions.

Could you please tell us more about the plan?

Previously, experts once suggested that all sums of money transferred from abroad into Vietnam should be converted into VND. However, the Government and central bank decided against this after thorough consideration. Right after this suggestion was made public, the foreign currency inflow into Vietnam decreased sharply.

Therefore, measures to reverse dollarization must be flexible and not extreme, and it is clear that direct intervention or administrative orders are not the right measures. This is the most important requirement for the plan.

Second, measures must ensure that depositors and enterprises have higher confidence in the commercial bank system

Third, it is necessary to make the cost of VND transactions lower compared to US$ transactions, which will help improve the convertibility of the local currency.

Fourth, it is necessary to stabilize the economy, which will result in people having more confidence in the local currency, and get them to keep VND in their wallets.

However, I have to acknowledge that to some extent, we cannot absolutely eliminate the dollarization of the national economy.

IN 2007, the foreign portfolio investment capital into Vietnam reached $6.2bil. Can you see any link between this and dollarization?

As we open the national economy, more and more foreign capital will enter, and if the foreign capital is overly high compared to the absorbability of the national economy, the supply of foreign currencies will be profuse, and dollarization will increase.

We have many choices of ways to deal with the problem. The Government is pursuing the principle that the central bank will continue buying foreign currencies to stabilize the value of the VND. Also, we need to take measures to control the VND supply in order stunt inflation. These steps were taken, to some extent, in 2007, and we will continue them in 2008.

Some experts have suggested that Vietnam should allow foreign investors to open foreign currency accounts to make securities transactions. If so, Vietnam can reduce dollarization, successfully control inflation, while foreign currencies in accounts at commercial banks can still produce profits for money owners. What do you think about this?

I have heard this suggestion. However, it may be contrary to the regulations stipulated in the Ordinance on Forex Management. The ordinance says that all foreign money must be transferred into Vietnam through a special account, and after that, the money must go into investments. (VNeconomy)