Vietnamese currency falls to new low, could go lower
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The official exchange rate between Vietnamese dong and U.S. dollar reached its highest this year Wednesday, and experts said the dong could depreciate further. The State Bank of Vietnam set a central exchange rate of VND22,757 on Wednesday, the sixth time the rate has gone up in the last two weeks.
The dong has fallen by VND352, or 1.57 percent, against the greenback since the beginning of the year.
The dollar’s value increased at commercial banks. At 3p.m. Wednesday, Vietcombank sold the dollar for VND23,350, VND15 higher than Tuesday.
Vietinbank also sold its dollar for VND23,350, VND17 higher than Tuesday, while BIDV sold it at VND23,355, VND25 higher.
The dollar also inched up on the free market. At 11.30 a.m. Wednesday, it was selling for VND23,360-23,410, VND10-20 higher than on Tuesday.
Economist Nguyen Tri Hieu said that the reason for the hike was high demand for dollars toward the end of the year as businesses often import large amounts of materials needed for manufacturing.
The ongoing U.S.-China trade war continues to exert exchange rate pressures, despite the U.S. announcing a 90-day halt on additional tariffs on Chinese goods starting next year, as there is no certainty that tensions will decline, he said.
“There is a high possibility that the dong’s value will continue to fall this year,” Hieu said.
Hieu said that the government should also devaluate the dong against the Chinese yuan so that the trade deficit between Vietnam and China can be reduced.
“There is a high possibility that the dong’s value will continue to fall this year,”
Vietnam relies heavily on China for materials and equipment for its labor-intensive manufacturing sector.
As the yuan’s value has fallen by 9 percent to the dollar since the beginning of this year, some experts have said that the dong should be devaluated even more to avoid impacts a cheaper yuan. Cheap made-in-China goods could be imported in large quantities to Vietnam and compete with domestic products, they said.
But economist Tran Dinh Thien said that the dong should be kept at a balanced rate between the U.S. dollar and the Chinese yuan. A 2-3 percent band a year is acceptable, he added.
A stronger dollar will benefit exporters, but will also create stronger pressure on inflation and interest rates which will increase business costs in a country with high imports and public debt, Thien said at a recent conference.
He added that the fluctuation of the dong should be controlled to help local companies conduct their business with greater certainty.
The government doesn’t want businesses to suffer shocks, he said.
Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.
Questions & Answers
Q.What is the primary reason given for the Vietnamese dong's recent depreciation?
What is the primary reason given for the Vietnamese dong's recent depreciation?
Economist Nguyen Tri Hieu states that high demand for dollars towards the end of the year, driven by businesses importing large amounts of materials for manufacturing, is a key reason for the hike.
Q.How has the ongoing U.S.-China trade war influenced the Vietnamese dong's exchange rate?
How has the ongoing U.S.-China trade war influenced the Vietnamese dong's exchange rate?
The U.S.-China trade war continues to put pressure on exchange rates, as there is no certainty that tensions will decline, despite a temporary halt on additional tariffs.
Q.What conflicting advice have economists offered regarding the dong's value relative to the Chinese yuan?
What conflicting advice have economists offered regarding the dong's value relative to the Chinese yuan?
One economist suggests devaluating the dong against the yuan to reduce the trade deficit. Another economist advises keeping the dong at a balanced rate between the U.S. Dollar and the Chinese yuan.
Q.What are the potential negative impacts of a stronger U.S. Dollar on Vietnam's economy?
What are the potential negative impacts of a stronger U.S. Dollar on Vietnam's economy?
A stronger dollar could increase pressure on inflation and interest rates, which would raise business costs in a country with high imports and public debt, according to economist Tran Dinh Thien.
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