Small banknotes scarce ahead of Lunar New Year

Updated : Fri, January 6, 2012,1:03 PM (GMT+0700)

New dong banknotes with small face values intended for use as lucky money in Tet

Photo: VNE

There will be a short supply of new dong banknotes, especially those with low face values, against rising demand for them for the coming Lunar New Year, local banks have said.

As a Vietnamese tradition, adults will grant “li xi,” or lucky money, which is new Vietnamese small bills, to children on the first day of the Lunar New Year (which falls on January 23) as a wish of luck. Some also use the small change to donate to pagodas after worshipping.

Hence, demand for exchanging the old bills for new banknotes with face values of VND200, VND500, and up to VND20,000 always soars in the few weeks ahead of Tet.

However, many banks said that, since they do not have a large supply of such banknotes this year, they cannot meet all of the demands of customers wishing to exchange the money.

An executive of Vietnam International Bank’s branch in Ho Chi Minh City’s District 1 told the Saigon Times Online that her bank will prioritize the exchange of small bills to customers who already have accounts at the institution.

She said the supply of bills with face values of VND1,000-2,000 this year is adequate, while there are not many notes of VND20,000-50,000, due to low allocation from the State Bank of Vietnam.

Many other banks also said they can only exchange a limited amount of small bills and new banknotes for customers due to the short supply.

Thus, many people have turned to the unofficial market, where money exchangers offer exorbitant exchange rates for the notes.

With the small bills of VND200 and VND500 experiencing the most severe scarcity, black market exchangers now charge customers a rate as high as 65 percent for the VND200 notes, newswire VNExpress reported.

One such exchanger in Hanoi’s Gia Lam District charges customers VND600,000 (US$28.8) for a sum of VND200,000, entirely consisting of the VND200 banknotes, and VND700,000 for a sum of VND500,000, with VND500 bills.

Exchange rates have surged by 150 percent compared to last year, while the rate applied for banknotes with face values of VND1,000 and above remain unchanged at 10 percent.

According to a source from the central bank, since banknotes of different face values will be put into circulation in this Lunar New Year in quantities as earlier allocated, it is illogical that there is a scarcity of banknotes of a particular face value.

Meanwhile, former central bank governor Cao Sy Kiem was quoted by VnExpress as saying that the 65-percent exchange rate for small change is too high.

However, he admitted that there will be a short supply for the VND10,000 and VND20,000 notes this year.

“Exchange rates are expected to soar even further, since demand keeps rising, while the central bank has limited the printing of banknotes with small face values,” Kiem said.