Source: The Nation
Many business people and ordinary savers still deposit money in foreign currencies despite increased efforts by the Bank of the Lao PDR to promote the use of the national currency, according to data from the central bank.
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 that 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 conducting 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 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 per cent compared to the previous year. This figure accounted for 48 per cent 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 per cent and accounted for 52 per cent of total deposits.
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In 2016, commercial deposits were recorded at about 61 trillion kip, an increase of about 13 per cent compared to the previous year. This figure accounts for 47 per cent 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 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.