Dong/dollar exchange rate not to be compressed in 2013

VietNamNet Bridge – It is highly possible that the State Bank of Vietnam would not make commitments on a fixed maximum depreciation of the local currency in 2013, but a flexible exchange rate policy would be pursued.

Vietnam, exchange rate, export turnover, trade deficit

The interbank exchange rate announced by the State Bank of Vietnam on January 7, 2013, stayed at VND20,828 for one dollar, the exchange rate which has been kept unchanged since December 24, 2011.

The dong/dollar exchange rate stabilization has been praised as the success of the central bank in 2012. This has helped ease the dollarization, giving the opportunity to the State Bank to buy more foreign currencies to increase the foreign currency reserves.

Commenting about this, Dr Cao Sy Kiem, a well known economist, said that the State Bank’s commitment in early 2012 not to let the dong depreciate by more than three percent has shown the strong determination of the watchdog agency in the stabilizing the market, thus easing the expectation on the dong devaluation.

However, analysts believe that the same policy could not be right for all circumstances.

Deputy General Director of VIB Bank Le Quang Trung said: “It’d be better for the State Bank not to make commitments about the maximum dong depreciation in 2013”.

According to Trung, the central bank’s plan to stabilize the dong/dollar exchange rate in 2012 was supported by Vietnam’s trade surplus, which means that Vietnam exported more than it imported, and it collected more foreign currencies than spent.

However, 2012 is just a particular phenomenon. Vietnamese should not be overjoyed about the trade surplus. As an agriculture economy, it needs to import machines and equipments to run domestic production and generate added value for the products.

This means that when the economic downturn is over and the national economy begins recovering, Vietnam would need to import input materials and machines in big quantities. If so, the trade deficit would return, which means that the income of dollars would be lower than the spending.

Dr. Le Xuan Nghia also thinks that the State Bank should not fix the exchange rate fluctuation bad for 2013, saying that if the commitment cannot be fulfilled, this would spoil the prestige of the central bank.

Trung also thinks that the State Bank just needs to make the statement that it would keep the dong stabilized, but it would regulate the exchange rate policy in a flexible way based on the market conditions, trade balance and import-export activities.

Trinh Quang Anh, an analyst from Maritime Bank, thinks that the fixed exchange rate over the last year helps Vietnam better control the inflation, but would bring difficulties to the future, especially to the export companies.

The Director of a joint stock bank in HCM City said in principle, the exchange rate stabilization would make businesses feel secure and encourage businesses to make investment to expand production. However, the State Bank still needs to devalue the dong if necessary. In the long term, the exchange rate needs to be adjusted to help improve the competitiveness of Vietnamese products in the world market.

Trung thinks that the dong may depreciate by two percent in 2013.

On January 7, 2013, commercial banks bought dollars at VND20,800 per dollar and sold at VND20,860.

Tien Phong

Vietnam, exchange rate, export turnover, trade deficit