Is it a good idea to convert money into dong or leave it as dollars or other currency? And since banks here only insure up to VND50 million is it risky to have a lot of money in the banks here? How can I best beat the Vietnamese inflation?
This is similar to a question I got from a friend in my local pub this week, and there are a few variables to look into before being able to give true and proper advice. If anything like my friend, the main problem he saw was that over the last few years, he has seen his spending power decreasing. So what do you do? Keep your money here or move it somewhere else?
First things to look at are, the currency that you get paid in, the currency that your largest outgoings will be in (for example, your rent) here in Vietnam and if you need to pay money overseas to cover expenses from your home country while you are living and working here.
If you get paid in dong and your major outgoings are in dong, what’s the point of changing money into US dollars or any other currency that you will not be able to use for everyday transactions. If you have to pay for your rent in US dollars as most landlords still want, just change the amount that you need, when you need it.
If you get paid in a foreign currency, paid directly into a bank by your employers, only take out in dong how much you need for the month, either a bit at a time or in one go, that’s your choice. The only difference is, depending on your bank, the amount that you may be charged a foreign transaction and fees added for using either a cash machine or using the cashiers within the branch.
This may still leave you with a large proportion of your income sitting in an account, not really doing much for you that over a period of time, can add up to quite a bit of cash. So what do you do with it?
You are correct to say that the deposit insurance offered through Vietnam can be seen as quite low comparative to the rest of the world, but please remember the majority of the deposits will be considerably lower than they will be in the rest of the world. This may not take away from your worry about keeping large volumes of money here. Short of doing the local thing of buying physical gold, which can be quite risky itself, you may want to look overseas to place some of your funds. This is not for everyone but it can work. Either back to your home country, or maybe even another financial jurisdiction that offers a higher level of protection and experience.
Moving money out of the country opens up the legalities of how much you can move, how to move it and the associated fees. The advice I gave my friend was to just use the banks to transfer money out of the country. Safety wise, using the swift network that the banks are linked to, they
can find out exactly where your money is if it goes missing or is taking a while to get to its destination. Black market methods of bank transfers are illegal and they should not be used under any circumstances. It’s not safe and you could lose everything just because you think you may save a few dollars on fees. Taking foreign currency in cash, out of the country, while legal up to a limit, is very risky because if asked by the customs officials, you will need to prove that the currency has been declared into the banking system. There is no point taking dong as it is a non-transferable currency (you can’t use it abroad). Also, if you get stopped by customs officials and everything is completely legit, you may still be asked to make a contribution to the coffee fund.
If you are transferring money over to a different country, bite the bullet and pay the fees. To lessen them, you may want to work out how much you want to transfer and how often. Also, if you are going cross currency, i.e. from dong to US dollars, you will need to use the exchange rate that the Vietnamese bank gives you. If you are from US dollars to AU dollars, you can choose to use the exchange rate that the Vietnamese bank gives you or the corresponding bank at the other side. Realistically, unless you are making multiple transactions or a large transaction, say over USD25,000 – USD30,000, there is no point attempting to speculate on the rate.
Back to the original problem of dealing with inflation. Short of asking your boss for an above inflation pay rise, what can you do? First of all, grin and bear it. It will be extremely dangerous for an individual without some knowledge to try to speculate on currency transactions, especially if you are attempting to gain an arbitrage advantage. For your savings, look long term, not short term. By long term, I mean a structured plan over a minimum period of five years taking into account your risk profile and also your plans during this period. Unfortunately, we live in an amazing and beautiful country that has an issue with inflation at the moment. All developing countries go through this; developed ones too. It will even itself out, but only if you look long term.
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Bio: Paul McLardie is a partner and a member of the investment committee at Total Wealth Management in Saigon. Previously he was Head of Wealth Management for a firm in Moscow and before that spent eight years at Barclays Bank UK within the Private Clients and Large Corporate sectors