Experts noted that the State Bank of Vietnam (SBV)’s proactive and flexible management of monetary policies and exchange rates had helped the domestic monetary and forex market stabilise, despite the constant fluctuations of the global finance.
The greenback continued to decline
In the last trading session of last week (August 7, 2020), the central rate continued to be adjusted down by 3 dong by SBV to 23,200 dong per US dollar. At banks with large foreign currency transactions, according to the reporter, the buying and selling price of the greenback was still relatively stable.
In general, from the beginning of the year up to then, except for March, the exchange rate had slight fluctuations. The exchange rate in the remaining months had almost no fluctuation, even following a downward trend. SSI Securities Corporation (SSI) believed that the strong depreciation of the dong as at the end of March was unlikely to happen due to the sharp depreciation of the US dollar in the international market and a more stable sentiment in the domestic market than in the previous period.
According to Tri Hieu, a financial and banking expert, the main reason for the decline in the exchange rate was the weakening of the US dollar, not necessarily the strengthening of the VND, because Vietnam was also affected by the Covid-19 epidemic. Specifically, in the past July 2020, the US dollar had dropped by four percent to the lowest level in two recent years. Many forecasts showed that the US dollar would continue to depreciate when its interest rates were close to zero percent, while the US government continued to inject a huge amount of currency into the economy.
Moreover, the growth index of the US economy was very low. According to data from the Bureau of Economic Analysis of America (BEA), the US gross domestic product (GDP) in Q2/2020 decreased by 32.9%, the lowest decrease in history. Previously, the US economy had dropped by five percent in the first three months of 2020 and had officially fallen into recession due to the impact of the Covid-19 pandemic. The US Department of Labour employment report also found that private US companies had created only 167,000 more jobs in July 2020, much lower than Dow Jones’ 1 million job forecast.
Besides, tensions between the US and China were getting hotter and hotter. At the same time, the US presidential election was also putting much pressure on the dollar.
Dinh Linh also said that the domestic exchange rate was influenced by many factors, including supply-demand, psychology, and external factors. Accordingly, the supply of foreign currencies in the economy was quite plentiful because the trade balance was estimated to have a surplus of $6.5 billion in the first seven months of the year, while the disbursement of the foreign direct investment (FDI) also reached $10.1 billion. The forecast was very positive in the context that Vietnam had become one of the bright spots for investment when many countries made a market shift from China to Vietnam, plus advantages from free trade agreements such as EU-Vietnam Free Trade Agreement (EVFTA).
While the demand for foreign currency was not expected to have a sudden change due to the decrease in imports because production was difficult. At the global context, Linh said that the US dollar would tend to go down because most would pay attention to safer hiding channels, such as gold.
Talking with reporters of the Banking Times, Trong Thinh, Finance Academy, said that in the next time the US dollar would continue to depreciate. That would cause other currencies in the world, including the dong, to continue to appreciate. Of course, according to Thinh, the government, as well as SBV, would have calculations to adjust the dong price at a reasonable level following economic developments.
Maintain the goal of stabilising the value of money
One of the factors that affected and depended on the exchange rate situation in the dong, according to experts, was the management and operating policies of SBV. There were also comments about loosening monetary policy. However, according to many experts, the loosening of monetary policy was unlikely to support businesses because the most serious difficulty for businesses today was the supply chain breakdown. While loosening monetary policy could put pressure on inflation, bad debt and exchange rate.
The loosening or tightening was the art of management, which must be flexible and necessary to consider many factors, because the loosening of the monetary policy could make the pressure on the devaluation of the dong easy to happen; thus inflation would increase. Accordingly, all the macroeconomic balances of the economy would change, and regulators would be in a passive position, an expert commented.
Experts also noted that the SBV’s proactive and flexible management of monetary and exchange rate policies had helped the domestic monetary and forex market stabilise, despite the constant fluctuations of the market in the global financial.
KB Securities Vietnam Company (KBSV) also said that, compared to other currencies in the region, the dong would continue to be considered a stable currency in the first half of 2020. At the end of March, due to the Covid-19 disease and the social gap, there were fluctuations, particularly a devaluation of the dong. However, immediately after that, the government and SBV had intervened, from which the dong returned to stability. The exchange rate stability was creating momentum for inflation to gradually back to the target level of four percent, thereby contributing to maintaining macroeconomic stability. That was the premise for the economy to recover sustainable growth.
Trong Thinh also assessed that when SBV was determined to maintain the value of the dong, step by step raising its value, inflation could be reduced, the macro balance could be kept stable. If the domestic money were released, the executive would be passive, or it would swirl in a spiral, the higher it went, the wider it was. These were some valuable lessons from the years of 1980 1985. Thinh also emphasized that the stability of the exchange rate and the dong value was one of the problems that state management agencies need to continue to carry out, helping businesses and the whole economy to be stable. A stable macroeconomic foundation was also one of the factors to attract more foreign investment, creating a driving force for growth. Furthermore, this expert forecasted, from then to the end of the year, with the current speed, there might be no big change in the value of the dong against the US dollar at about two percent.
