The disclosure by the State Bank of Vietnam (SBV) on Monday that a new forex management mechanism will be applied in 2016 has had an immediate impact on the market, with U.S. dollar prices going down considerably after reaching the ceiling over the weekend.

At state-run lender Vietcombank, the greenback closed yesterday at only VND22,510, down VND37 from a day earlier.

Vietnamese banks ACB and Eximbank quoted the currency at VND22,530, a decline of VND17 from the weekend.

The bid price for dollars at most banks on Monday was VND22,440.

The U.S. dollar is allowed to be traded in Vietnam within a band of VND21,233 and VND22,547, following the latest forex rate adjustment by the State Bank of Vietnam in August.

Most local banks have begun selling the currency at the ceiling price since the weekend, but all slashed their quotes after a statement from the central bank on Monday that it would change the way the dollar/dong exchange rate is managed to “de-dollarize the economy.”

In Vietnam, the USD-VND exchange rate can currently move either side of the mid-point of VND21,890 within a band of three percent.

Even though the mid-point is set daily by the SBV, the central bank usually either narrows or widens the trading band for forex management, instead of adjusting the rate.

However, starting in 2016, the mid-point may be “adjusted more frequently, even on a daily basis, so there are risks for those speculating on the foreign currency,” SBV Governor Nguyen Van Binh told Tuoi Tre (Youth) newspaper.

Binh said the current three percent trading band “still allows dollar speculators to make profits,” but once the mid-point is changed on a frequent basis, it will be riskier for the hoarders because “the dollar you buy today will bring losses the following day.”

He also revealed that besides the measure to be applied to the forex management, the SBV will also consider “applying a negative interest rate” to both corporate and individual deposits, which are now set at zero.

A negative interest rate means that instead of paying interest to depositors, lenders will charge them a fee for dollar-denominated savings, according to the governor.

The move is similar to what the SBV did to the gold market in late 2012, when Vietnamese banks were forced to stop mobilizing gold deposits, and began charging ‘gold keeping fees’ the following year.

Binh asserted that the central bank will focus on continuing its de-dollarization drive with the said measures to be enacted in 2016.

Insiders react

Dr. Nguyen Minh Phong said the negative interest rate for dollar deposits will cause a shock to the public and businesses, as it is a common mindset in Vietnam that savings are a channel to earn profits without paying any fees.

“Many retired people rely on their savings books as a means of livelihood, so the ‘keeping fee’ will affect their incomes, and may also lead to falling (dollar) deposits,” the economist told Tuoi Tre on the phone.

It is in all likelihood that people may try to deposit the currency overseas to ensure safety for their savings, he added.

“The central bank may succeed in de-dollarizing the economy and increase dong-denominated deposits with its plan, but it should be prepared to deal with the possible negative impacts of such moves,” Phong advised.

But Dr. Cao Si Kiem, former governor of the SBV, has a different point of view, hailing the coming measures of the central bank as “reasonable, flexible and timely.”

“The negative interest rate will not cause any damage for corporate and individual depositors, but will help boost the de-dollarization drive,” he said.

“Members of the public should not worry about the ‘dollar keeping fee,’ as they can sell the foreign currency right at the banks and open dong savings accounts, which have higher interest rates.”

Interest on VND deposits with a term between one month and six months is currently capped at 5.5 percent a year, compared to zero for dollar-denominated savings.

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