Why don’t exporters diversify payment currencies?

Vietnamese companies have been heavily criticised for attaching themselves to the dollar in making payments for export deals, due to which they have been suffering when the dollar devaluates. In response, the companies said that it is not easy to change the custom of using dollars in making payments overnight.

Rooted habit

According to the Forex Management Department under the State Bank of Vietnam, payments for up to 90% of export turnover is being made in dollars.

Meanwhile, in 2007, the dollar lost 9.9% of its value against the euro, and in the first 2.5 months of 2008, the dollar devaluated by 6.6% against the euro, which brought about big losses for Vietnamese exporters.

A question has been raised about why Vietnamese exporters do not diversify the currencies used in making payments in order to minimise risks caused by the dollar’s devaluation.

A representative of a farm produce export company said that his company always exports products to the EU and should have used the euro as the payment currency. However, for many years, his company and the payment bank (a Vietnamese bank) both wanted to use the US dollar in making payment, and this has become a habit.

“100% of Vietnam’s robusta coffee is being traded in US dollars, and it is very difficult to persuade importers to use the euro instead of the dollar, including the EU importers,” said Tran Tuyen Huan, Director of ACC, specialising in farm produce.

Huan added that exporters set Vietnam’s robusta coffee prices based on London forward market prices, which, for the last tens of years, have been making transactions in US dollars.

According to Nguyen Thanh Duoc, Head of the Export Division under Dau Tieng Rubber Company, the rubber export prices are set based on the rubber prices in the Singapore or Tokyo market. Though the two markets use Singaporean dollars and Japanese yen, Vietnamese rubber exporters still convert the prices to US dollars when selling to foreign buyers.

“Both the Vietnamese sellers and foreign buyers have got used to using dollars in making payments. It is not so easy to persuade them to change the habit,” Duoc said.

There is another factor which makes it difficult to change the habit of using the dollar in payment is that most of importers (with representative offices in HCM City) are now compiling trade contracts in US dollars (100% for coffee exports and at least 50% for rubber).
Diversifying payment currencies? Not so easy

The State Bank of Vietnam many times has urged exporters to persuade their partners to diversify the currencies used in payment. For example, Japanese yen can be used in trading with Japanese partners, while the euro can be used while exporting products to the EU.

However, according to Truong Dinh Hoe, Secretary General of the Vietnam Association of Exporters and Producers (VASEP), EU partners will not accept paying euro to import seafood products from Vietnam.

They would be unwise to accept making payment in euro, as the dollar devaluation will help them earn money, Hoe said.

For example, a kilogramme of filet tra sent to the EU has the export price of $2.8. As the dollar is devaluating against the euro, importers will have to pay a sum of money equal to $3.6/kg if they pay in euro.

An exporter has pointed out that it is the fault of the State Bank in exporters’ habit of using the US dollar as the only payment currency. He said that for many years, the central bank has been pursuing a weak VND policy in order to encourage exports, while it has not been paying any special attention to the VND/euro or VND/JY exchange rates.



source: http://english.vietnamnet.vn/biz/2008/03/773842/