Report highlights CNY depreciation as threat to VND

Experts believe that USD is on an appreciation trend while CNY and other regional currencies have been depreciating.

There is no high possibility for CNY depreciation, according to an insightful report recently released by economic expert Can Van Luc and his fellows from the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV).

They explained that China has raised concerns about the withdrawal of capital like what happened in 2015 while the Asian giant wants to avoid criticism for money manipulation and an escalation of the ongoing US-China trade war. Moreover, China still embraces the process of yuan internationalization.

Other experts believe the trade war could result in considerable fluctuations in the global foreign exchange market. The USD is on an appreciation trend while the CNY and other regional currencies have been depreciating. This could hamper the USD/VND exchange rate.

Economic expert Bui Quang Tin said that over the medium and long term, the USD/VND exchange rate would rely on an array of macroeconomic indicators, such as GDP, the balance of payments, trade balance, and FDI inflows. He added that the central exchange rate of USD/VND is based on the consideration of eight foreign currencies, including the USD, EUR, JPY, CNY, and SGD.

The depreciation of CNY, which is frequently used in trade and investment transactions, would have a considerable impact on Vietnam’s exchange rate policy. Indeed, the country’s inflation rate has increased in the past time, partly caused by pressures from increasing exchange rates and interest rates as well as hikes in electricity prices, and healthcare and education costs.

CNY depreciation would naturally yield negative impacts on other foreign currencies, said Tin, adding that VND appreciation would create hindrances for the country’s exports in the medium and long term. He noted that exporters must have close watch on the fluctuations of exchange rates and mitigate relevant risks by gaining derivatives.

The Government, ministries, financial institutions, and enterprises should be proactive in updating developments of the US-China trade war and subsequent fluctuations in the international financial and money market so that they could take swift and prompt actions if needed.