The State Bank of Vietnam (SBV) regulates that from the beginning of 2019, businesses are not allowed to borrow short-term foreign currency to make overseas payments of imported goods and services for producing and trading of goods to serve the domestic needs.
These businesses must switch from borrowing to buying foreign currency in the market or borrowing in dong. The borrowing of medium and long-term foreign currency to make overseas payments of imported goods and services by export businesses that have sufficient revenue from business and production activities will also be terminated by the end of September 30th 2019.
According to the SBV, the roadmap to limit foreign currency credit continues to be implemented this year in order to gradually shift from foreign currency mobilisation and lending to foreign currency buying and selling relation. Specifically, the proportion of foreign currency loans on total outstanding credit will be step by step reduced towards stopping foreign currency lending, in order to basically overcome the dollarisation situation in the economy by 2030 at the latest. The aim is to encourage the holding of dong and narrow down mobilising and lending in foreign currency in accordance with the government’s policy.
Banking and economic expert Nguyen Tri Hieu said that the drastic anti-dollarisation is necessary, but so far, dollarisation has not been completely eliminated in Vietnam. It still exists in the economy and people, businesses still can borrow US dollars and hoard US dollars.
From an objective and multi-dimensional perspective, Hieu said that the fight against dollarisation of course brings disadvantages to businesses, particularly exporters, because for a long time they have been able to borrow US dollars at low interest rates. If now they have to borrow dong at high interest rates, their production and business activities will face difficulties.
Moreover, the interest rates in the domestic are still high, ranging from nine to 13 percent per annum, while they are much lower in advanced countries. Therefore, many production businesses will be disadvantaged.
In the opposite direction, according to Hieu, the anti-dollarisation will benefit the economy because Vietnam’s economy is approaching the stage of having only one currency to pay and trade across the country. Thus, tightening foreign currency credit at this time is needed. This move will make the US dollar price stable and there is no longer speculation and hoarding of foreign currency in the market, thereby reducing risks related to exchange rates.
According to Dr Bui Quang Tin, anti-dollarisation is appropriate and necessary in the current context because when people borrow foreign currency too much, the use of dong will be limited and the strength of dong will decline.
Dr Tin analysed that it is alarming when an economy has a dollarisation rate of over 30%, as the risk ratio is quite high and deserves to be warned. In recent years, the dollarisation rate in Vietnam has averaged about 10%, which is considered a low rate, but it may be higher if it is not well controlled. In fact, many people still want to borrow US dollars and speculate US dollars, and the dollarisation rate will rise when people get more loans in US dollars.
“Good control of the dollarisation of the economy is essential as it helps increase the strength of dong, and supports the regulation of monetary policy and dong interest rate, the management of US dollar/dong exchange rate and the management of credit growth limit by the SBV,” said Dr Tin.
From the beginning of 2019 until now, the SBV has purchased an addition of about 6.2 billion US dollars of foreign exchange reserves, showing a fairly abundant supply of foreign currency in the market. If the country continues to see trade surplus, foreign currency flows from overseas remittances, disbursement of foreign direct investment and indirect investment, etc. the foreign currency supply will continue to increase. That will be a positive move which significantly contributes to the fight against dollarisation under the government’s policy.
