March 07, 2018

Foreign currency deposits soar as people lose confidence in kip

By:  Ekaphone Phouthonesy, Vientiane Times, March 1, 2018

VIENTIANE - A large number of businesspeople and members of the public still deposit money in foreign currencies despite increased efforts by the Bank of the Lao PDR to promote the usage of the national currency, according to data from the central bank.

Image of Lao money, the kip

As part of its efforts to promote usage of the kip, the central bank has joined forces with the commerce sector to urge vendors in major towns to display prices in kip.

The bank has also erected billboards along major roads which tell people that using the kip means they love their country. In relation to monetary policy, the central bank has kept the interest rate on kip deposits higher than that of foreign currency accounts so that more people will use the national currency.

Although the central bank has been conducted this campaign over the past few years, the business community and the public still lack the confidence to save their money in the local currency due to its instability.

According to the latest annual report of the Bank of the Lao PDR, posted on its official website, a majority of people still prefer to deposit money in foreign currencies as they are more confident it will hold its value.

The report shows that kip deposits in banks saw an increase of only 6.6 percent compared to the previous year. This figure accounted for 48 percent of total deposits.

Use of the kip is small compared to the use of foreign currencies, according to the data. Foreign currency deposits increased by 19 percent and accounted for 52 percent of total deposits.

In 2016, commercial deposits were recorded at about 61 trillion kip, an increase of about 13 percent compared to the previous year. This figure accounts for 47 percent of GDP, according to the report.

Analysis shows that the increase in foreign currency deposits demonstrates that the Bank of the Lao PDR’s efforts to promote the use of the national currency was not as effective as many had expected.

Some depositors said they preferred to save money in foreign currencies, in particular the Thai baht and US dollar, because they have more confidence in the stability of these currencies. In addition, many people save money in foreign currencies because most big-ticket items, such as cars, houses and land, are traded in foreign currencies.

Car dealers said they preferred the US dollar because they make purchases in this currency. They were happy to sell for kip if the central bank guaranteed that it could supply foreign currency in accordance with the official rate.

“If we accept Lao currency from customers, we have to get this money exchanged and the rate is higher than the official one. So it’s better for us to take US dollars,” said a car dealer on T2 Road.

She said that if the kip were more stable and it was easier to change money at the official rate, many people would keep their savings in kip because they would get a higher interest rate.

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