Central bank no longer concerned about exchange rates
(VOV) - For the first time in several decades, the State Bank of Vietnam’s exchange rate management has successfully prevented what it terms the ‘dollarisation’ of the national economy.
SBV introduced a range of measures that helped cool down a currency market risking overheating earlier in the year.
It laid out plans to keep exchange rates within the 2–3% margin during 2013, stabilising the currency market and reinforcing trust in the local Vietnam Dong.
Domestic exchange market fluctuations forced the bank to intervene in February–March and May–July.
It asked big commercial banks to sell large amounts of US dollars, and worked with relevant ministries and agencies on stepping up their scrutiny to keep the market in check.
On June 28, the SBV raised the inter-bank rate by 1% from 20,828VND/US$ to 21,036VND/US$, while simultaneously lowering the US dollar deposit interest rate in accordance with market laws of supply and demand.
Its flexible management proved effective in prompting credit organisations to sell US dollars to the central bank, increasing national currency reserves and bringing the exchange rate back under control.
SBV management policy, together with other monetary tools, helped control the quantity of Vietnam Dong in circulation and thereby eased inflationary pressure afflicting the economy.
A SBV report reveals the ratio of currency deposits to overall money supply fell sharply from more than 30% in the 1990s to 15.8% in late 2011, 12.3% in late 2012, and 12% as of August 2013.
Thanks to the stable exchange rate, the central bank has been able to purchase large amounts of currencies for national reserves, strengthening the nation’s financial power.