Economists support banks' move to manage foreign currencies
Economists support banks' move to manage foreign currencies
An independent economist has supported the move carried out by banks in Laos to restrict the sale of foreign currencies notably Thai baht and US dollars to maintain liquidity.
The independent economist Dr Mana Southichak was responding to ongoing public concerns that the control of foreign currencies could lead to a devaluation of the kip and stimulate a further rise in inflation.
Speaking to Vientiane Times on Wednesday, Dr Mana said banks in Laos are facing falling foreign currency reserves because businesses constantly required Thai baht and US dollars to import goods.
The falling reserves are the result of declining exports, particularly those in mining and agricultural commodities while imports are still increasing and this trade had to be paid for in foreign currencies.
However, Dr Mana said, a huge amount of foreign currencies were circulated on the black market where people purchased the quantity of Thai baht and US dollars they needed.
Dr Mana is an experienced economist who has conducted extensive research for the government, international organisations and private companies.
I think that commercial banks face declining foreign currencies reserves but on the whole Laos does not lack Thai baht and US dollars since not all currencies are deposited at the banks. Large amounts of foreign currencies are still traded outside the official banking system, he said.
It's good that the banks control foreign currencies to stabilise exchange rates and make sure that they have enough reserves to give their Thai baht and US dollar depositors when they wish to withdraw. If they failed to provide their own depositors, the situation could be even worse.
Currently, most commercial banks welcome foreign currencies but they are mostly reluctant to sell them.
The move has forced people to rely on other sources including exchange rate shops or even the black market despite more expensive rates on offer.
Members of the public are concerned the move has resulted in people buying products at higher prices because traders are now selling their goods based on unofficial exchange rates.
A restriction of the foreign reserves would result in increased demand for Thai baht and US dollars to import goods from other countries.
Bankers said the limit on the sale of foreign currencies aimed to encourage the general public to use more kip in financial transactions but agreed the restrictions should not apply to overseas visitors and traders.
A senior economist from the National Economic Research Institute Dr Leeber Leebouapao commented recently that stabilising exchange rates was one of the most important actions that could be done to boost business confidence and ensure the economy could move forward.
Economists agreed the control of foreign currency reserves was not the best method when the reserves are falling but the country still lacked alternatives to deal with it.
For many years, foreign currencies have played an important role in the local economy as, like most developing countries, Laos imports more goods than it exports, with more than 50 percent of imports coming from Thailand.
