SBV praised for forex mechanism

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SBV praised for forex mechanism

Post  Admin on Tue Jan 12, 2016 10:43 am

SBV praised for forex mechanism

The SBV unveiled a flexible dong/dollar exchange rate mechanism on December 31 under which it will set the reference rate every day, instead of leaving it untouched for a long time as it did hitherto. — Photo vneconomy
by Thien Ly
Experts say the new mechanism for exchange rate introduced by the State Bank of Viet Nam (SBV) has created flexibility, enabling both credit institutions and enterprises to exercise greater control over their business operations.


The SBV unveiled a flexible dong/dollar exchange rate mechanism on December 31 under which it will set the reference rate every day, instead of leaving it untouched for a long time as it did hitherto.



The trading band continues to be plus or minus 3 per cent.




The SBV has also instructed banks not to lend foreign currencies including the dollar, only sell them.


On December 5, a day after the new policy came into effect, the inter-bank reference rate increased marginally to VND21,907 to the dollar.



Many bankers said the number of transactions on that day remained steady with the forex rate quite a bit below the upper ceiling price.


SBV executives said the flexible approach would enable it to achieve its management objectives while letting the currency move based on global market fluctuations.


The move was only one of several measures to strengthen the role of the Vietnamese currency and steady the forex market by making dollar hoarding and speculation unremunerative.



Analysts have hailed the new mechanism as a move that effectively scuttles the rigid control the bank exercised over the years and is necessary to ensure competitiveness amid the country's deeper integration.


It would closely track developments both at home and abroad, helping the central bank proactively adapt to changes, they said.


Some also said the new policy would reduce the high expectations surrounding the greenback and increase people's confidence in the dong.


But businesses are a bit more wary.


Most prefer a stable exchange rate regime since it helps them better control costs.



They said the imminent volatility would force them to keep an eye on market developments, and, to hedge risks, use derivatives.


In fact, according to SBV statistics, already the value of US dollar forward contracts has skyrocketed from around US$10 million a day to $100-200 million after the central bank implemented a series of anti-dollarisation measures.


But companies are unhappy with current regulations that do not allow buyers of US dollar forward contracts to cancel them, complaining this places them at high risk.


They want banks to diversify forward trading to create more options for them.


http://vietnamnews.vn/economy/business-beat/280971/sbv-praised-for-forex-mechanism.html

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