Although there is no official data from the management agency, it is not difficult to see that the level of dollarisation in the economy continues to decline.
Indeed, the assessment of the dollarisation level of an economy can be based on the ratio of foreign currency deposits to total payment instruments or total deposits and the ratio of foreign currency credit to total payment or total credit. According to the International Monetary Fund (IMF) criteria, a country with a ratio of foreign currency deposits to M2 greater than 30 percent is a country with a high degree of dollarisation.
Considering from the perspective of deposit dollarisation, recent studies have indicated that the level of dollarisation in Vietnam tends to decline quite quickly in recent times. Financial statements of banks also partly show this when the proportion of foreign currency deposits in total deposits at banks continued to decrease in the first six months.
The case of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is a typical example. Although being a state-owned commercial bank with strength in foreign currency trading, the foreign currency deposits of customers in Vietcombank still decreased by 7.36 trillion dong in the first six months to 135.932 trillion dong. While total deposits increased by 8.6 percent to 870.86 trillion dong, Vietcombank’s proportion of foreign currency deposits in total deposits fell rapidly from 17.9 percent at the end of 2018 to 15.6 percent at the end of the second quarter.
Similarly, in the first six months, foreign currency mobilised capital at Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) also decreased by 1.744 trillion dong to 54.211 trillion dong, dragging the proportion of foreign currency deposits in total deposits also decreased from 6.8 percent to 6.4 percent. Foreign currency deposits of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also decreased by 2.493 trillion dong to 47.847 trillion dong, dragging the proportion of foreign currency deposits from 5.1 percent to 4.5 percent.
Thus, only three large state-owned commercial banks, foreign currency deposits decreased to 11.597 trillion dong, equivalent to about $500 million in the first half of the year. The above movement shows that the savings flow of people tends to shift to dong.
It is also reasonable when holding dong brings much greater benefits than holding foreign currencies. Indeed, the highest deposit interest rate in dong currently reached 8.68.7 percent per year; while the deposit interest rate in US dollar has been reduced to zero from the past few years, making the holding of US dollar not bring benefits to the people, sometimes cause troubles because it takes a lot of work to keep, and when there is a need to spend it, you have to bring it to the market to pay for it.
The biggest reason why people are still interested in foreign currencies is the worry of the dong devaluation. But for several years, the exchange rate has always been stable. As of 2018, the exchange rate was assessed to be quite strong, but for the whole year, the central exchange rate increased only by 1.7 percent, and the exchange rate in the interbank market increased by 2.7 percent. The exchange rate in the first months of this year was also quite stable despite fluctuations of the dollar and the world financial market. Accordingly, by the end of June, the new central exchange rate increased by 1.06 percent, while the exchange rate at new banks rose by 0.5 percent.
Obviously with such a large interest rate difference, even if the exchange rate has increased by three percent this year as the worst scenario, some organisations forecast that keeping the dong is still more profitable than hold foreign currencies. That is why many people have sold foreign currencies to get dong for savings. As a result, credit institutions bought net foreign currencies from people and businesses. SBV also bought foreign currencies from credit institutions to supplement the national foreign exchange reserves.
Not only in terms of deposits but also in terms of credit, the dollarisation situation is also declining sharply when credit institutions have terminated short-term foreign currency loans to make payments for overseas imports of goods and services serving domestic demand from 1/4/2019 and will continue to stop lending in foreign currencies for medium- and long-term needs to make overseas payments to import goods and services from October 1.
The narrowing of foreign currency credit, shifting from borrowing to trading has made banks’ demand for foreign currency mobilisation plummet. While the deposit interest rate in US dollar is reduced to zero percent and the exchange rate remains stable, it also reduces the demand for foreign currency holding by people and businesses. The situation of dollarisation in the economy has declined strongly to support the administration of SBV’s exchange rate.
