Vietnam’s forex reserves hit a new record of $105 billion

09-Nov-2021 Intellasia | Tri Thuc Tre | 5:02 AM Print This Post

In the recently published marcro report, BIDV Securities Company (BSC) mentioned that the value of Vietnam’s foreign exchange (forex) reserves have reached a record high level of 105 billion US dollars.

The national forex reserves include different components, such as foreign currencies, gold, foreign government bonds, etc. which are determined and re-evaluated from time to time. For Vietnam, the strong growth in recent years has been mainly attributed to the net buying of foreign currencies carried out by the State Bank of Vietnam (SBV), which has been updated by the government’s representative at some points in recent time.

Previously, the updated report in March 2021 of the International Monetary Fund (IMF) specifically on Vietnam stated that the forex reserves of Vietnam had increased strongly in 2020 and were forecasted to be far larger than the 100 billion US dollars in 2021.

The IMF’s data showed that Vietnam’s forex reserves by 2020 reached 94.8 billion US dollars, marking a series of sharp increases since 2016. According to this organisation’s forecast, this number would continue to grow significantly in 2021 with an expected value of 113.7 billion US dollars.

In a recent report of the World Bank (WB), experts also assessed that Vietnam still maintains a positive position with forex reserves increasing in the first half of the year. specifically, Vietnam accumulated six billion US dollars of forex reserves from December 2020 to April 2021 as the current and financial balances were both in surplus.

On July 19th, Vietnam reached an agreement with the US on currency issues. Vietnam committed not to devaluate the dong to create unfair competitive advantages in international trade and to be more transparent in monetary policy and exchange rates.

Immediately after achieving positive progress in the above agreement, the SBV stopped buying foreign currency futures. Instead, the agency returned to using spot buying tools to have an immediate and effective impact on the capital market, such as stabilising the exchange rate, supporting liquidity, stabilising interbank interest rates, facilitating commercial banks to lower interest rates.

At that time, commenting on this move, KB Securities said that it is likely that the SBV will actively buy foreign currencies in the near future instead of being cautious like in the first seven months of 2021 (only buying about seven to eight billion US dollars). This can help reduce difficulties for export businesses in the current epidemic context.

In fact, as of August 12th 2021, the SBV changed the method of buying foreign currencies from a six-month term to spot trading, with a sharp reduction in the buying price of US dollars. This move is considered as the SBV’s intention to create a new and immediate money supply for the market, adding contitions to create abundant capital sources and stabilise interest rates, or creating the conditions for commercial banks to further lower interest rates.

As of November 5th, the SBV continued to considerably lower the buying rate of US dollar by 100 billion dong to 22,650 dong per US dollar. This is the second sharp decrease after August 11th (of which the rate was cut from 22,975 dong per US dollar to 22,750 dong per US dollar, applicable from August 12th to November 4th).

It is known that in the current market, the source of foreign currencies is abundant, the supply and demand balance is favourable when new sources of supply are rushing in, especially in the foreign loan channel that many businesses and banks are developing in the context of the low interest rates. Facing this favourable flow, the US dollar/dong exchange rate continuously slipped and the SBV continued to net purchase foreign currencies to further increase the national forex reserves.

 

Category: Finance, Vietnam

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