The Bank of Laos has issued a notice to provide better flexibility in foreign currency exchange rates to commercial banks as the LAK’s value continues to plummet.
According to the notice issued by the BOL on 19 June, the price for purchasing and selling foreign currencies must not exceed BOL’s daily reference rate by +- 7.5%.
Previously, commercial banks were limited to +- 4.50% of the central bank’s daily reference rate for foreign currency exchanges.
The notice from BOL also states that the gap between purchase and selling price must not exceed 2%, an increase from a variation of only 1% being implemented previously, according to the Governor of the central bank, Dr. Bounleua Sinxayvoravong.
The new policy is intended to bring commercial bank rates closer to parallel market rates, thereby closing the gap between official and unofficial market rates. The new scheme also hopes to bring foreign exchange units more in line with the banking system, as banks can now charge a higher margin on sales.
However, if the government doesn’t take steps to address the underlying economic problems, and if commercial banks are unable to meet the demand for foreign currencies, rates in unofficial markets will continue to rise.
According to the Vientiane Times, one economist, who asked not to be named, said the central bank is attempting to minimize the gap between the official and parallel foreign exchange markets through this measure and are trying to stabilize the value of LAK.
Some also argue that Laos should increase its production to reduce its reliance on imports and minimize the vulnerability of businesses to foreign currency fluctuations. However, until such measures are put into action, the local currency’s value continues to rise steadily, leading to financial hardship for the country’s residents.