VietNamNet Bridge – The Vietnam Association of Financial Investors (VAFI) has proposed to impose a cap on the dollar deposit interest rates in order to stop the dollar speculation.

Dollar price: just let the market adjust itself, expert say 

VAFI has sent a document to the Prime Minister, State Bank of Vietnam and the National Finance Supervision Council, proposing to set a cap on the dollar interest rates, stressing that this will help stop the dollar speculation, the main reason behind the dollar price fever in recent days.

Currently, the ceiling dollar interest rate applied to the deposits by institutions is one percent per annum. VAFI believes that it is necessary to apply the ceiling rate on the deposits by individuals as well.

The association’s document quoted opinions of some foreign investors as saying that it is necessary to apply the zero-percent interest rate on the deposits in foreign currencies, or to impose progressive tax on deposits in foreign currencies, in order to create a bigger gap between the Vietnam dong and dollar interest rates. Once people understand that they cannot get profit from dollar deposits, they will make deposits in Vietnam dong. This will help ease the demand for foreign currencies.

According to VAFI, the volume of foreign currencies deposited by people at commercial banks is very big, accounting for 50-60 percent of the total deposit in foreign currencies.

If the proposal is approved, Vietnamese people will make comparison between the dollar interest rate and the inflation rate, and they will find out that it will be more profitable to make deposit in Vietnam dong. People will not want to purchase dollars any more, while those, who have dollar, will sell dollar for Vietnam dong which they will deposit at banks to get profit. If so, the dong/dollar exchange rate will go down.

VAFI also believes that the solution will help make the Vietnam dong more valuable, thus allowing to gradually ease the dong deposit interest rates and curb inflation.

Some analysts have doubts about the feasibility of the proposal and raised two questions 1/ will the imposition of a cap on interest rate come in line with the current laws, and 2/ where will foreign currencies go if people do not deposit at banks any more?

Regarding the first question, VAFI said that fighting against the dollarization is a policy of the Government, and it is reasonable and legal to control the deposits in foreign currencies.

Regarding the second question, VAFI said it has conducted a survey and found out that people will not purchase gold because the prices are now overly high. As the world’s economy is recovering, the gold price is believed to decrease in the near future.

Most people will not keep dollars under their pillows because they fear risks. Therefore, VAFI believes that people will still keep depositing at banks, despite the low interest rate.

Some people may pour money into the real estate sector, but VAFI believes that the number of people will not be high.

P.V