SBV stays steadfast amid recommendation on currency devaluation
SBV stays steadfast amid recommendation on currency devaluation
Two independent reports about Vietnam’s macro economy recommending the local currency devaluation of 2-4 percent in 2014 have been released.
The report about Vietnam’s economy in the last 11 months by the National Finance Supervision Council says that Vietnam needs a stable exchange rate policy, but it is necessary to set up a new currency parity in the new context, when the global financial and monetary crisis has established a new price ground.
The report by the independent research center BIDV released on December 4 also made the same suggestion. The authors of the report predicted that with the dong devaluation by 2-4 percent and the trading band of 1 percent, the dollar price would be at VND21,400-22,000 per dollar, which would benefit the export and help improve the trade and general balance.
Why “2-4 percent”?
The reports of the independent organizations were enough to push the dollar prices up.
Vietcombank on December 5 quoted the prices at VND21,100 – 21,140 per dollar (buy and sale). On December 6, the price moved up slightly to VND21,130-21,170 per dollar. If comparing with the December 2’s exchange rate at VND21,085 - 21,125 and the exchange rate of the days before at VND21,080 – 21,120, one can see that the dollar price has increased by VND50 per dollar.
Nguyen Manh, the head of the team that compiled by the BIDV’s report, said the current factors all support the stability of the dong/dollar exchange rate. The foreign currency supply is high thanks to the foreign direct investment (FDI), official development assistance (ODA) and overseas remittance increases.
Meanwhile, the domestic demand which determines the import activities would not see big changes in the remaining days of the year.
The stability of the exchange rate is also supported by the macroeconomic foundation and strong foreign currency reserves, about $30 billion, equal to 12.5-week’s import turnover, by the end of 2013 and 14-week’s import turnover in 2014.
Therefore, we forecast the 2-4 percent dong devaluation and the trading band of 1 percent which would be maintained through 2014. The exchange rate would be between VDN21,400 and VND22,000 per dollar.
Different viewpoints
The common thing found in both of the reports is the conclusion that Vietnam should depreciate the dong slightly in order to help boost export.
However, this seems to not coincide with the watchdog agency’s viewpoint.
In mid-2011, the State Bank admitted the thin foreign currency reserve, just equal to 3-5-week’s import turnover. However, the reserve has been increasing steadily over the last two years.
The State Bank has been doing everything to control the foreign currency supply and demand. It “buys 7 and sells 3” on the interbank market, tightly controls the gold market and prevents gold imports across the border. Especially, it has decided that only the businesses which can earn money in foreign currencies, can borrow capital in foreign currencies from banks.
Meanwhile, the dong liquidity of the banking system is very strong. It is obvious that banks have profuse capital, but they don’t know what to do with it. In such a context, it is understandable that big banks expect to see the “foreign currency price waves” to make profit.
However, the watchdog agency’s viewpoint is different. Deputy Governor of the State Bank Le Minh Hung affirmed that the foreign currency demand and supply are still in balance, and that the current dollar price increases are just temporary.
vietnamnet
