Emergence of black market hurts devalued currency
A new black market in the dong is developing across Vietnam putting added pressure on the devalued currency, banking sources say.
Speculation is rising that the State Bank will move again soon to ease pressures and keep exports competitive as the Thai baht continues its downward spiral.
New demand for gold and US dollars is pushing the dong as high as 12,500 to the US currency on the streets of Hanoi and Ho Chi Minh City, Vietnam's economic hub.
The non-convertible currency is trading on the official market at 12,303 after last week's unprecedented depreciation.
Market pressures on the back of the region's currency woes saw the bank double to 10 per cent the trading band allowed on either side of the rate set daily by Hanoi.
The dong swiftly found the floor of the band in official trading after the effective devaluation on October 15.
The emergence two months ago of the first black market in years put pressure on the State Bank to free itself from habitual caution and double the trading band.
Off-shore analysts said the devaluation was barely enough and the dong remained grossly over-valued by as much as 50 per cent.
Yesterday they said the re-emergence of an underground trading system was evidence more action was needed.
State Bank sources, however, said Vietnam would never take dramatic steps with its currency and would always move 'step by step'.
The dong's non-convertibility removed it from direct trading pressure as regional currencies plunged, but cheaper rice prices in Thailand quickly eroded the calm.
One 100,000-tonne rice order from the Philippines went to Bangkok traders and the fall of the baht to record lows kept the problem in the spotlight.
The Saigon Times Daily yesterday put export losses covering a range of commodities, from peanuts to construction materials, at US$350 million since July.
The figure could reach more than $500 million by the end of the year, the paper said.
Keeping public confidence in the dong remains a priority for the State Bank, which has won foreign praise for restoring faith in the currency after years of war and hardline Marxism.
The policy is a key part of its drive to get more money into the banking system to help fund development and ambitious growth targets.
The private hoarding of gold and dollars remains common and Vietnam has an official savings rate of just 19 per cent - considered the lowest in the region.