On the black market in Vietnam the US dollar is fetching up to 25,600 Vietnamese dong, the highest price it has ever pulled, according to Tuoi Tre. Conversely, the State Bank of Vietnam’s (SBV) floating peg is currently sitting at 24,012 with official channels permitted to buy the dong for no less than 23,400 and to sell it for no more than 25,154. This has put the difference between official and unofficial channels at up to 1,000 dong in some circumstances.
What’s going on? There are a number of factors putting pressure on the local currency, including:
- People aren’t borrowing money which seems to reflect a broader down turn in consumer sentiment toward the economy on the whole–the SBV announced credit growth declined in January by .6 percent increasing the supply of dong in the market;
- People are storing their wealth in safe-haven assets including gold and US dollars–local gold prices have reached all-time highs of late which are roughly 20 percent over the world gold price; and
- Last year, firms burned through stock rather than importing more raw materials as a result of uncertainty around the volume of new orders coming in. As orders begin to return–January experienced some fairly decent export growth–firms will need to scale up their imports of said raw materials using more US dollars.
The bigger question here is how the SBV will manage this pressure and what broader impacts that management might have.