Authorities to encourage foreign currency deposits in banking system
Relevant sectors have been told to encourage local people to deposit their holdings of foreign currencies at banks and make financial transactions through the banking system.
The move aims to make it easier for authorities to manage the nation’s cash flow and enable commercial banks to have more foreign currency reserves to supply entrepreneurs importing goods into the country.
Currently, commercial banks have been encountering falling foreign currency reserves notably US dollar and Thai baht; meanwhile huge volumes of foreign currency transactions have been made outside the banks.
The government’s monthly meeting held in Vientiane last week agreed that relevant sectors need to work harder in maintaining financial liquidity.
Cabinet members at the two-day meeting chaired by Prime Minister ThonglounSisoulith also agreed it was critical to inject local people’s foreign currencies into the official bank system.
A senior banker, who asked to remain anonymous, told Vientiane Times this week that attracting foreign currencies to the banks can be achieved in three ways.
One is to further raise awareness and educate Lao people about the importance of keeping savings at banks and what it means for the nation.
The second way is to raise interest rates as an incentive to attract more depositors and the third is to enforce the law regarding the illegal trade or exchange of foreign currencies in society.
In September last year, commercial banks in Laos raised their interest rates offered on Thai baht and US dollar deposit accounts hoping to build up reserves of these currencies.
For instance, Phongsavanh Bank raised their interest rates to 6 percent (US$) and 5.75 percent (baht) for 12-month deposits, and 7 percent (US$) and 6.75 percent (baht) for 24-month deposit accounts during that period.
Bankers called for the government to carry out a stronger information campaign to encourage the public to use Lao kip, instead of holding foreign currencies in cash for financial transactions.
Lao companies and vendors accepting payments in Thai baht and US dollars for their products makes it difficult for the central bank to manage foreign currencies.
In addition, many people prefer to keep foreign denominated cash in hand so they can easily import goods from other countries.
As Laos shares a long border with Thailand, many Lao people like to keep Thai baht as it’s easy for them to cross the border to visit or import goods from the larger southern neighbour.
The US dollar and Thai baht has continued to appreciate against the Lao kip over the past few weeks, sparking concerns that the currency fluctuation could further drive up prices of products in Laos.
The falling foreign currency reserves have forced the central bank to implement stricter controls on foreign currencies in a move to stabilise exchange rates and sustain economic growth.
The falling reserves are the result of a drop in Laos’ exports, predominantly in mining and agricultural commodities. Moreover, tourism, one of the main sectors bringing in huge amounts of foreign currencies experienced a decline in foreign visitor arrivals last year meaning less foreign currency was brought into Laos.