VND Constant depreciation is detrimental to exports
Dr. Le Xuan Nghia, former Vice Chairman of the National Financial Supervision Commission, member of the National Financial and Monetary Policy Advisory Council |
How do you assess the impacts leading to the recent significant gap in USD and VND exchange rates over time?
The strongest interest rate hike in 28 years by the US Federal Reserve (FED) had a strong impact on the global financial system, as well as increased the USD price. Accordingly, the USD index (DXY) has uninterruptedly "crushed" the old record highs, from 98 to 108 points. However, despite the sharp inflation increase of 9.1%, the dollar set a record price which proves that inflation in other countries is also very high and currencies in the currency basket are depreciated sharply against the US dollar.
In Vietnam, the 6-month average inflation rate is only 2.44%, so the VND should have appreciated against the USD because Vietnam's inflation is much lower than that of the US. This has resulted from the State Bank of Vietnam (SBV)'s policy of ensuring the stability of the foreign currency market as well as complying with commitments to avoid falling into a situation of "currency manipulation" with the US Department of Finance. As a result, the VND exchange rate maintains a relatively low devaluation compared to many other currencies in the region.
However, VND is under pressure to depreciate because Vietnam's current account deficit is relatively high. Therefore, Vietnam is trying to stabilize the exchange rate, mainly to stabilize inflation. After a short time, the SBV was forced to sell foreign currency reserves to stabilize the exchange rate and balance the supply and demand of imports. This can be prolonged as Vietnam's export growth rate compared to the previous year has decreased from 29% to 17%.
What fluctuation is exposed to the VND this year?
Until now, VND has only decreased by approximately 2%, so by the end of the year, VND will only decrease by 2.5%. This is also a great restraint of the State Bank which brings positive performance. If this exchange rate can be maintained until the end of this year, next year Vietnam may not be affected much by the international economic situation which is expected to be very bad.
How will the devaluation of the VND affect Vietnam's import and export activities, sir?
The DXY index increased strongly but compared to six other major currencies, not against VND, so other countries exporting to the US at this time benefited because of the appreciation of the USD. But Vietnam's exports to the US do not benefit much due to a slight appreciation of 2% of the USD against the VND while this difference in other currencies is 9-10%. However, at present, the SBV is focusing on fighting inflation and stabilizing the macro-economy, so we may have to sacrifice the target of higher export growth.
Moreover, in my opinion, the concessive depreciation of VND against the USD will not only harm exports but also threatens import inflation, because most of Vietnam's exports have high import value content which not to mention many products produced for domestic consumption must also import raw materials from abroad. Exchange rate stability is an important goal to control cost-push inflation today
Amid complicated developments in the commodity and foreign exchange markets, what should import-export businesses pay attention to ensure stable payment cash flow, sir?
Enterprises must pay attention to the exchange rate between VND and foreign trade payment currencies, in order to choose competitive export and import markets as well as favorable payment currency. Businesses should diversify international payment currencies, avoiding using only USD.
Notably, inflation, the Russia-Ukraine war, the pandemic, etc. have all affected some of Vietnam's key markets, so it is important to build a medium-term trade strategy based on new market data in case the above condition persists.
In addition, large and frequent import-export businesses should choose banks with good trade finance ability, providing simple and convenient exchange risk prevention services. Enterprises can use swap contracts (SWAPs), and forward sales contracts to ensure that import and export activities are planned in a scientific and long-term manner.
That also creates confidence for the donor bank as well as international customers, to be able to cope with any market risks, including supply chain disruptions, inflation risks, and currency risks.
Thank you very much!
Related News
Mid-November: Vietnam's trade volume matches 2023 total, eyes record-breaking growth
09:25 | 22/11/2024 Import-Export
New export and business cooperation opportunities from "dual conversion"
10:53 | 23/11/2024 Import-Export
Why seafood exports to some Middle Eastern Countries are stalled
14:47 | 20/11/2024 Import-Export
Businesses need support from vietnamese representative offices abroad
14:48 | 20/11/2024 Headlines
Latest News
Agricultural, forestry and fishery trade surplus value shoots up
10:54 | 23/11/2024 Import-Export
VN's food processing industry struggles to improve quality and value chain integration
15:53 | 22/11/2024 Import-Export
Approach strategy of the seafood industry when implementing UKVFTA
09:26 | 22/11/2024 Import-Export
Vietnamese enterprises facing challenges from cross-border e-commerce platforms
14:32 | 21/11/2024 Import-Export
More News
Vietnam, Malaysia eye new milestone in trade ties
14:29 | 21/11/2024 Import-Export
Shrimp exports surge in 10 months, generating 3.2 billion USD
14:27 | 21/11/2024 Import-Export
Vietnam’s exports to the U.S. near US$100 billion milestone
09:46 | 21/11/2024 Import-Export
From the “abnormal” coffee price, worries about the new crop
09:46 | 21/11/2024 Import-Export
What obstacles limit the market share of Vietnamese goods in the UK?
14:49 | 20/11/2024 Import-Export
Storm No. 3 destroys profits of many insurance companies
14:45 | 20/11/2024 Import-Export
Vietnam, Malaysia eye golden partnership opportunities in Halal industry
14:44 | 20/11/2024 Import-Export
Tra fish sector aiming for production, processing greening for sustainable development
14:41 | 20/11/2024 Import-Export
Developing supporting industries for the billion-dollar export commodity groups
09:26 | 20/11/2024 Import-Export
Your care
Agricultural, forestry and fishery trade surplus value shoots up
10:54 | 23/11/2024 Import-Export
New export and business cooperation opportunities from "dual conversion"
10:53 | 23/11/2024 Import-Export
VN's food processing industry struggles to improve quality and value chain integration
15:53 | 22/11/2024 Import-Export
Approach strategy of the seafood industry when implementing UKVFTA
09:26 | 22/11/2024 Import-Export
Mid-November: Vietnam's trade volume matches 2023 total, eyes record-breaking growth
09:25 | 22/11/2024 Import-Export