Black market price for the dollar climbs

A single dollar cost as much as VND18,000 on the street on Friday.

The price represented a VND200-300 depreciation against the dollar within a day and a VND350-450 fall since Thursday morning.

Gold shops on Ha Trung and Tran Nhan Tong streets, Ha Noi, bought a single dollar at VND17,750-17,800 and sold at VND17,950-18,000.

The rate at small shops ranged from VND17,600-17,750.

In the non-deliverable-forward, or NDF, market – where investors anticipate the value of currencies – the monthly cost of the dollar was expected to rise to VND18,300 within three months – up VND700 against late last year – and VND19,200 within six months.

The dollar is expected to cost VND19,900 by December.

But the State Bank of Viet Nam reduced the daily inter-bank exchange rate by VND3 to VND16,974 on the mandated market.

Vietcombank’s buying and selling price was the same at VND17,483 and the exchange rates at commercial banks remained at the upper limit of the adjustable peg.

The Vietcombank’s rate at the end of 2008 was VND17,494 compared with VND16,025 the previous year.

Several bankers described the demand for the dollar as normal.

"Purchasing power in the domestic market is not growing and demand from enterprises to pay for imports remains limited," said Asia Commercial Bank deputy general director Nguyen Thanh Toai.

The currency, at its most volatile, had ranged between VND15,825 and VND17,495 throughout last year.

Why the high price?

So why the high price on the street?

Senior economist Le Dang Doanh believes that both business and individuals are seeking safety in the dollar.

Others believe the Government decision, announced last Friday, to issue bonds denominated in the dollar to fund key national projects and help offset the budget deficit has added to the currency’s popularity.

People believe policy makers will allow the depreciation of the domestic currency to make the bonds more attractive.

As PXP Viet Nam Asset Management’s Kevin Snowball explained: "Investors will buy bonds if the foreign currency is stronger because they’ll make money.

"They won’t buy bonds if the foreign currency is weaker because they’ll lose money."

Also gold traders, who sold to take advantage of the high international price for the precious metal, are turning their dong into the dollar because the interest banks now offer for deposits is not as attractive as several months ago.

The likelihood that the interest paid for dong deposits will fall as low inflation in Asia, including Viet Nam, allows the central bank to further reduce the interest rate also promotes the dollar.

In addition, the Harvard Kennedy School of Government and some international banks have advised a further, orderly depreciation of the dong this year to boost exports and narrow the trade deficit.

Then, as Asian stocks slide and insolvent banks face the prospect of public ownership, investors are choosing the safety of the dollar, US Treasury bonds and gold.

And many bankers agree, the Government is unlikely to intervene in the market.

Hot gold

Gold jumped slightly to VND19.67 million (US$1,130) a tael yesterday, up VND20,000 per tael against late Thursday.

The price followed the world price for the precious metal, which had reached $978.20 an ounce – up $4.80 and its highest for more than six months.

A tael equals 1.2 troy ounces.

On the Sai Gon Gold Trading Exchange in Ha Noi, gold cost VND20.47 million ($1,133) per tael.

In Ha Noi, the Phu Nhuan Jewellery Co, PNJ-DAB, the buy-sell price for gold leaf was VND19.58/19.66 million ($1,125-1,129) per tael.

At Bao Tin Minh Chau Jewellery Co (BTMC), gold traded at about VND19.54/19.62 million ($1,122-1,127) per tael while at the Sai Gon Jewellery Holding Co, it was about VND19.60/19.67 million ($1,126-1,130) per tael.

Sellers, who offered not only gold leaf but also gold jewellery, heavily outnumbered buyers in the morning and early afternoon.

Viet Nam Gold Trading Association member Tran Quoc Quynh forecast that domestic gold prices would increase during the next few days because of the international trend upward.

It could plateau at $1,050 per ounce because of the heavy demand in the US, Russia, China, Switzerland and France, he said.