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
Take advantage of e-commerce leverage for export
13:25 | 20/04/2024 Import-Export
Rubber exports are flourishing, promising potential
17:51 | 20/04/2024 Import-Export
Opportunity for a high open economy like Vietnam
15:56 | 19/04/2024 Headlines
It is expected that there are higher orders and revenue in the second quarter from European businesses
09:31 | 23/04/2024 Import-Export
Latest News
More efforts needed to maintain export growth to China: Insiders
13:55 | 23/04/2024 Import-Export
Vietnamese rice prices on the hike
15:08 | 22/04/2024 Import-Export
FDI flow into garment and textile sector bounces back
15:06 | 22/04/2024 Import-Export
Investors play a key role in developing the industrial park system
10:38 | 22/04/2024 Headlines
More News
Find ways to a corporation for businesses in industrial parks
10:38 | 22/04/2024 Import-Export
Export turnover of two agricultural product groups grows three-digit
18:10 | 21/04/2024 Import-Export
Early warnings reduce risks in trade defense
18:09 | 21/04/2024 Import-Export
Vietnam becomes biggest rice supplier for Singapore
17:49 | 20/04/2024 Import-Export
Vietnam an attractive destination for electronics, semiconductor investors: Official
17:41 | 20/04/2024 Import-Export
Wood exports started well
13:26 | 20/04/2024 Import-Export
Vietnam earns 1.43 billion USD from rice exports in Q1
15:50 | 19/04/2024 Import-Export
Localities get ready for fourth FDI boom
15:35 | 19/04/2024 Import-Export
Opportunities to develop a smart and sustainable packaging industry
14:14 | 19/04/2024 Import-Export
Your care
More efforts needed to maintain export growth to China: Insiders
13:55 | 23/04/2024 Import-Export
It is expected that there are higher orders and revenue in the second quarter from European businesses
09:31 | 23/04/2024 Import-Export
Vietnamese rice prices on the hike
15:08 | 22/04/2024 Import-Export
FDI flow into garment and textile sector bounces back
15:06 | 22/04/2024 Import-Export
Investors play a key role in developing the industrial park system
10:38 | 22/04/2024 Headlines