The director of one private company told the Tien Phong reporters that he converts all the firm’s income into dollars and deposits these into the bank. Keeping cash assets in dollars has turned out to be safest bet in an era of high dong inflation.

Thanh, an office worker, also admitted she keeps only two kinds of assets, dollars and gold. “I have the telephone numbers of five places where, if I need to buy dollars, they will deliver to my door immediately,” she said.

Asked what she will do if the Vietnam dong deposit interest rates rise very high while the interest paid on dollar deposits rates drops dramatically, Thanh maintained that she would still hold dollars.

A senior executive of the Bank for Investment and Development (BIDV) said neither case is unusual.  Many depositors prefer to hold cash in dollars, clinging to the greenback even when the Vietnam dong interest rate was sky high, 19 percent per annum, at the end of 2007. “People fear high inflation and the fluctuation of the dong/dollar rate,” he said.

The director of a big bank said the activities of commercial banks are exacerbating the dollarization process.   The Foreign Currency Management Ordinance allows Vietnamese citizens to deposit foreign currencies at credit institutions and get back both principal and interest in the same foreign currencies.  Banks are happy to oblige. “The regulation itself encourages people to keep dollars and deposit them into bank accounts, thus helping make the dollarisation more serious.”

According to another expert, the Ordinance should be amended to stipulate that people can deposit in foreign currencies, but they may only withdraw Vietnam dong.  That, he thinks, would deflate a black market that’s booming because people are rushing to buy dollars to deposit at banks.  If they could only withdraw dong, said the expert, the foreign currency shortage of 2009 would never have occurred.

Should the rules be changed?

Nguyen Thu Ha, a Deputy General Director of Vietcombank, recalled that not so long ago, the law allowed people to deposit foreign currency only for a credit in Vietnam dong.

“I agree that the the liberalization of the foreign currency regimne is one of the factors that has made dollarization become more serious,” Ha said. However, she pointed out, if Vietnam does not allow people to deposit and withdraw money in foreign currencies, it will not be able to attract dollar remittances, a very important source of capital, to the nation.

It is clear that the regulation has encouraged one and all to purchase, trade and keep dollars, comment the Tien Phong reporters.  All sorts of enterprises, both public and private, hunt for dollars.  If they are able to earn dollars from export contracts, they avoid selling them to banks in exchange for dong.

Analysts have also pointed out that Ordinance is internally contradictory.  On one hand, it allows people to withdraw money in dollars and hold dollars, but on the other hand, it forbids them to use the dollar to make transactions within the country.