How to ease the “dollar fever”?

VietNamNet Bridge – State management agencies blame speculation for the dollar price fever. People rush to purchase dollars, while businesses refuse to sell dollars to banks. why do people and businesses try to hoard dollars?

Uncertainties encourage speculation

Thanh Minh, 38, who lives in Hanoi, has to check the dollar price every day, because he wants to purchase dollars to pay his debts. Minh bought a car earlier this year on the installment plan. Since the car’s price was in dollars, it has become more expensive because of the steady dollar increase. Minh has decided to pay debts right now, or else he will not be able to pay debts if the increase continues.

on the morning of December 1, Minh bought dollars on the black market at 21,570 dong per dollar. The dollar price has increased by 2000 dong per dollar just over the past two months. The price has exceeded the record threshold of 21,500 dong per dollar and it is coming closer to 21,600 dong.

“Several months ago, when the dollar price began increasing, I decided not to buy dollars at this moment, because I hoped the dollar price would go down again. The central bank promised to stabilize the dollar price,” Minh said.

Minh is not alone. Many other people have the same problem. The debts they incur have increased by tens to hundreds of millions dong over the past few months just because of the dollar increase. Fearing further increases, people rush to buy dollars on the black market,.

Thanh Phuong, whom VIetNamNet’s reporter met on Ha Trung street foreign currency market on December 1, related that she has bought $200,000. Phuong believes that she made a right decision. She got the money from selling an apartment in Thanh Xuan District and she initially intended to reinvest it in the real estate market. However, she later realized that the real estate market is too quiet, while the gold and dollar prices keep increasing. “Keeping dollars proves to be the best way to keep your assets at this moment,” Phuong said. 

Meanwhile, Huy Nam in Dinh Cong new urban area, who has a saving of one billion dong which he intends to use to build a new house, has also decided to purchase dollars. “I feel anxious about the dollar increases, therefore, I have to keep my money in dollars,” Nam explained.

The strange thing is that the more the dollar price increases, the more people rush to purchase dollars. The owners of the exchange shops on Ha Trung street also said the demand for dollars will increase further, because people believe the dollar will continue to rise.

Tran Du Lich, Head of the HCM City Economics Institute, commented that people feel anxious when the inflation rate is increasing. The Ministry of Industry and Trade has admitted that keeping the inflation rate at one-digit level would be an impossible mission. People would not rush to buy dollars if the dong/dollar exchange rate is stable, but they will rush to collect dollars if they see uncertainties. It is clear that uncertainties encourage speculation.

The real demands

It is estimated that in 2010, the total foreign currency purchase turnover would be $58.5 billion, a decrease of 12 percent over 2009, while the total sale turnover would reach $59.92 billion, down by 4.3 percent. The dong mobilized capital is estimated to reach 579,430 billion dong (+ 30.8 percent), and foreign currency mobilized capital 195,820 billion dong (+ 17 percent). The dong outstanding loans would reach 501,650 billion dong by the end of the year, while the outstanding loans in foreign currencies 198,160 billion dong.

The figures show that the dollar outstanding loans would be relatively high. Meanwhile, the demand for dollars is increasing because people always try to pay debts at the end of the year. In fact, the high demand for dollars towards the end of the year has been anticipated.

In November 2010, the import turnover reached $1.3 billion, the highest level in the last nine months, which has raised the trade deficit to $10.7 billion. It is estimated that the total trade deficit may reach $12 billion for the whole year 2010.

The Prime Minister has instructed the State Bank to follow a flexible monetary policy which to control the volume of cash in circulation. He also requested the State Bank to apply necessary measures to control the foreign currency exchange rates more tightly and ease the speculation.