Tuesday, July 1, 2008

Exchange Sm-exchange Rate

This entry might be boring to some. So warning!: I am going to discuss the VND:USD exchange rate because it has been a cause of frustration for me for the past month or so. I'll try to explain what I know the best I can, but I think there are many things I don't know nor understand.

The US dollar is highly used in Vietnam, like in many other poor countries. Not only is it widely used, but many things other than souvenirs for tourists are quoted in USD. I pay my Vietnamese classes and rent (the real source of my frustration) in USD.

When we arrived in Vietnam in February, 1 USD was worth about 16,000 dong. This number has been increasing as the USD has become scarce here. Someone is hogging USD, either Vietnamese people hoping it will go up (really, speculating) or possibly even the bank/government trying to decrease the use of USD in the country. The low supply of USD and higher demand is causing the price to increase (I remember something from my economics class...!).

This has caused Vietnam, in the past month or so, to have two exchange rates in the country: the official bank rate and the unofficial black market rate (the rate jewelry stores use). In the past months, in Thanh Nien, a Vietnamese daily, the black market rate was quoted, around 17,500 dong while the bank rate was around 16,400 dong.

You can imagine what this discrepancy instigates... What exchange rate should be used? This is actually quite a big difference when you're paying a large amount like rent. Our rent is 400 USD, but as we have used up our USD we have been paying in VND. My landlady has always gone by the black market rate. Since our rent has been stable (she would ask for an extra 30,000, about 2 USD due to the fluctuating exchange, which shows how petty she is!), I didn't actually realize there were two rates until last month, when she wanted an extra 400,000 dong (about 25 USD). After a heated discussion, we paid the bank rate but were told that next month she would only take USD.

Fast forward to this month. We tried to purchase USD at the bank but the bank had instated a policy that no USD could be purchased, unless you were closing your account. Even then, a request has to be written for the director to review. So no one can purchase USD, other than going to the jewelry store and paying the inflated exchange.

With the bank rate being 16,847 dong and the black market rate nearing 18,500 dong, we knew we were in for a battle. The landlady said she could not accept the bank rate because she would lose out. Really, she's only losing the potential of making more money. The exchange rate is not affecting her costs of running a building. I argued that The Boyfriend's salary is quoted in USD, but is paid in dong, using the bank rate, so we'd be paying an extra 40 USD. She argued we are two people and use a lot of water! What does that have to do with anything???

I asked her what the black market rate is because it wasn't quoted in the Thanh Nien. She said she'd go to a jewelry and check. How dubious does that sound? I think something has happened. Vietnamese people are discouraged to use this rate and so it is no longer quoted in the paper.

Since our lease ends at the end of the month, we figured we had some leverage because we want to stay an extra month. After telling our landlady this, and that we would only stay for the extra month if we paid the bank rate, she told us she'd ask her son. Ten minutes later, she knocked, smiling sheepishly. "Pay the bank rate! It's not a big difference!". Sure, it's not a big difference when you're getting an additional month's rent.

Whether any of this legal, I'm not sure. I just can't imagine this happening in Canada. I understand that the Canadian dollar is not strongly pegged against another currency. But still... When things like this happen, I realize I would not stay in Vietnam for the long term. Things like this would just infuriate me. Of course, next time we'll know better. Ask for a straight out quote in dong for rent or at least demand the bank exchange rate from the get go.


Anonymous said...

Hi dear,
The USD is go high because the high demand like you learn but the reason of the high demand is because the people in VN feell insecure to keep the VND ,they go to buy gold and USD so the price is up special in VN they have no control in the black market so when you ask to buy they give the high price but if you ask to sale they will give you the price almost same with the bank rate .
Someone like your landlady they just use that situation to make money with someone like you or The BF she hope you pay her VND but with the USD market price more than you pay her the USD because she can't sale higher than the bank rate .

Miss.Adventure said...

Thank you for your comment. Unfortunately, I do think some people are taking advantage of the situation.

Language Hack Vietnam said...

Maybe it's not that somebody is hogging all the dollars in this country. Many people think the current rate is wrong and expect the dong to decrease in value significantly in the future (Vietnam dong US dollar exchange rate future) and that's why there is a black market rate and because the black market rate is so different if it was easy to buy dollars at the lower rate everybody would do that and sell at the higher rate.

I've recently posted on this topic as well: Vietnam dong currency crisis? and Vietnamese dong devalued to fight inflation

Luckily for me I get paid in dollars (not converted into dong) and my rent is quoted in dong. But, like you, my Vietnamese classes are quoted in dollars.

Language Hack Vietnam said...

As you know bargaining is in the blood of Vietnamese people, it's a crime to pay more than necessary. The main problem for you like many other foreigners is that the contract is in dollars without any specified exchange rate. If you gave her $400 she would have $400 but if you gave her Vietnam dong at the bank exchange rate she wouldn't be able to go and buy $400 with it. She would get less. It's she said she would only accept dollars and you had to go and exchange it yourself. But I think where she's taking advantage of you is by charging $400 where a local Vietnamese would probably pay much less for similar accommodations. So I think she should be pretty happy with what she gets.

Miss.Adventure said...

Thanks Language Hack Vietnam. I read your entries. Very interesting! I wonder if Vietnamese realize that other countries are trying to get rid of their US dollars because it's depreciating...

vietnamese translation service said...

Love your pics of the Ben Thanh market!

Anonymous said...

I was in VN in June. I made the mistake of converting all my US dollars to dongs at a bank when i first arrived. I ended up having almost $US 2000 in dong at the end of the trip. I went to the bank to convert dongs back to dollars and the request was denied. It was such a frustrating experience because i had no choice but convert the money in the black market and by doing so i lost a lot of money. Wish i had read your post before going there.

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