Hoe said the total money supply (M2) growth rate of 2.53 percent by June 20 was too low. If the GDP growth rate was 3.72 percent and the inflation rate 4.74 percent in the first half of the year, the M2 growth rate should have been 8.4 percent. It is clear that cash is depleted in the economy. This has existed since 2022, making liquidity a big problem. 

Where has the money gone?

The first reason is that the state’s money cannot be spent. Minister of Finance Ho Duc Phoc said, of VND1 quadrillion of dong, VND230 trillion is deposited at commercial banks and VND800 trillion at the central bank. The problem is that the state’s money is in coffers and cannot be pumped into the economy.

If the VND800 trillion could be spent as planned, the total means of payment would not be as low as currently seen.

Secondly, government bond issuance and treasury bonds have attracted a lot of money which was put into custody at the central bank because disbursement for public investment and target programs has been going slowly. Meanwhile, the state still has to pay interest (3-4 percent for 5-10-year bonds).

Also, the State Bank of Vietnam (SBV) has bought $10 billion, but immediately withdrew dong from circulation via open market operations (OMO).

All these moves show that fiscal and monetary policies have not been cleverly coordinated to ease the cash depletion in the economy.

What are the other causes?

There are many other reasons. Local newspapers have reported about gold smuggling across border gates, which means that cash has been converted into foreign currencies carried via border gates. If the money was still in Vietnam, it would be counted as M2. 

In addition, illegal activities occur, including illegal remittances and money laundering, such as the VND30 trillion case which was discovered recently. 

Another important reason is payments via social networks. One just needs to have an account to make payment via Zalo Pay for overseas activities, such as healthcare, tourism, tuition, and even home purchases.

Money can also be remitted via official channels. Foreign invested enterprises can transfer their profits to home countries or other countries for re-investment. Also, credit institutions mobilize capital in foreign currencies, but as they cannot lend the money, they remit the capital abroad for investment. 

These are ways that cause a money deficit in the economy.

What measures are needed to improve liquidity?

The most important thing is increasing the money supply. However, I have to emphasize that the first solution is the smooth co-application of both fiscal and monetary policies. It is necessary to calculate how much money to leave in the economy. When the money from the state budget is not disbursed, it would be better to leave dong used to buy foreign currencies in the economy, and when the state’s money is disbursed, it is necessary to withdraw dong from circulation through OMO.

The deposit growth rate is very low, just around 3 percent in the first six months of the year. How can we ask commercial banks to increase lending if deposits grow so slowly?

The deposit growth rate is low because of enterprises’ weak capital absorption capability. Besides, there is a technical problem. The capital of commercial bank has grown very slowly, just 3 percent, which means that commercial banks cannot satisfy the governance index in accordance with Basel II (they can only provide 80 percent of mobilized capital in tier-1 market) 

Currently, about 10 commercial banks lend more than 80 percent, and some banks have lent more than 100 percent of the capital mobilized in tier-1 market. They blame this on credit room, but it is not true. They have broken the safety line and they can’t lend more money.

To boost credit, the total demand of the economy needs to increase. However, total demand is low at this moment and consumer demand is very weak; businesses don’t have capital demand. 

Therefore, what needs to be done is stimulate demand, rather than worrying about inflation.

We have the VND350 trillion credit package, but deployment has been going very slowly. I think that for the social security package, it is necessary to provide money directly to the accounts of families in difficulties. Only by doing this will we be able to stimulate demand.

Tu Giang