Foreign exchange reserves reach $80bil

21-Jan-2020 Intellasia | Dau tu Online | 6:02 AM Print This Post

$80 billion of foreign reserves is a cushion to help Vietnam cope with external shocks this year. However, in the near future, the State Bank of Vietnam (SBV) must still be very careful when buying and selling foreign currencies.

The US Treasury Department has released a January 2020 review report for major trading partners. Accordingly, Vietnam is still on the list of countries that are monitored by the US for monetary manipulation.

Among the three criteria that the US considers, including bilateral trade surplus with the US at least $20 billion; current account surplus equivalent to at least two percent of GDP; and one-way and long-term intervention on the foreign exchange market, Vietnam violates the first criterion with a trade surplus of $47 billion in four quarters (as of June 2019).

The US acknowledged that Vietnam’s current account balance was narrowed to only 1.7 percent of GDP and foreign exchange market intervention was two-way.

However, experts say that Vietnam still needs to be cautious. According to the judgment of Ban Viet Securities Company (BVSC), from June 2019 until now, SBV has purchased a large amount of foreign currency (estimated at more than $10 billion) and has exceeded the threshold of two percent of GDP. Therefore, in the near future, the risk of Vietnam being “caught” by the Trump administration has not been completely eliminated.

In the aforementioned report, the US Department of Finance recommended that Vietnam should reduce the intervention and allow exchange rate adjustment according to basic economic principles.

Nguyen Duc Do, an economist, said that the US’s continued inclusion of Vietnam in the watch list of monetary manipulation so SBV had to be more cautious in buying foreign currencies in 2020, even the purchase, and selling foreign currencies of SBV was only for the purpose of stabilising the domestic market, not for creating unfair competition with trading partners.

The SBV Governor, Le Minh Hung has repeatedly affirmed, SBV never uses the exchange rate to create competition with trading partners, do not intentionally interfere with monetary policy to create advantage in import and export of goods. Vietnam does not manipulate money.

In 2019, SBV also actively cooperates with the Ministry of Industry and Trade and the Ministry of Foreign Affairs to work with partners, affirming that Vietnam operates monetary and exchange rates according to market movements. In 2020, this task will continue to be given top priority by the regulator.

Currently, Vietnam has a record high level of foreign exchange reserves (by the end of 2019 it was nearly $80 billion).

ers of commercial banks said that, although it was in the end of the year payment season, system liquidity was abundant. In the market, the exchange rate was also quite calm, and different from the tension of liquidity situation that usually took place during Tet holiday like previous years.

Although the purchase of foreign currencies in the near future will have to be more cautious, experts believe that the exchange rate this year may continue to be stable due to many supporting factors, and it will not face much pressure like previous years. The US-China trade war has shown signs of cooling off, the US has removed China from the list of currency manipulation countries, which may cause the yuan to appreciate, making the domestic exchange rate easier to breathe.

In addition to the record foreign exchange reserves, exports, foreign direct investment (FDI), and foreign indirect investment (FII) have all grown well, creating confidence in the market. Therefore, according to experts, in 2020, although SBV has less intervention of the foreign exchange market, it is likely that the exchange rate will remain stable.

Of course, factors like the global economy show signs of slowing down; US China trade war, US Iran tensions, and Brexit have not been completely resolved; 2020 is the election year for the US President. There are still unknowns to be wary of the exchange rate.

Stabilising the foreign exchange market is the most important factor to stabilise the macro and ensure confidence in the dong, so SBV will certainly not let go of control with this market. With the experience of smooth management in recent years, SBV will certainly buy and sell in appropriate doses to stabilise the market and continue negotiating with the US.

In the context of the current effects, the economist Bui Quang Tin said that this year, the exchange rate would only fluctuate one to two percent.

 


Category: Finance, Vietnam

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