Vietnam’s foreign currency reserves in 2017 and early 2018 have reached the highest level ever. In 2015, Vietnam’s foreign currency reserve ranked the sixth in Southeast Asia region; the 19th in Asia and the 48th in the world.
In the period of 20052015, Vietnam’s foreign currency reserves increased more than three times, with an average growth of 12.1 percent/year. That’s a pretty high growth rate.
From 2016 until now, Vietnam’s foreign currency reserves continued to rise with 38.1 percent in 2016, 28.2 percent in 2017 and 15 percent in the first 40 days of 2018. The reserve on February 10, 2018 was 6.4 times higher than in 2005.
Foreign currency reserves come from many sources. The basic source is the surplus of Vietnam’s international payment balance. It is estimated that the surplus of payment balance last year reached $5.5 billion. The trade balance of goods continued to achieve surplus thanks to trade surplus reaching $2.92 billion. Foreign direct investment touched $17.5 billion. Foreign indirect investment was estimated at nearly $6 billion. The ODA disbursement was estimated at over $2 billion. Expenditure of international tourists hit $8.99 billion. Remittances have risen, surpassing $10 billion.
An important source of increasing and also an important emphasis of Vietnam’s foreign currency reserves in the past year was that the increase in the scale of foreign currency reserves by the end of the year doubled the surplus of the payment balance which proves that the State Bank of Vietnam has bought a large amount of foreign currency from the people and previously held businesses (estimated at about $6 billion) due to various reasons, such as inflation was curbed; the dong/US dollar exchange rate was stable, even falling.
Increased foreign reserves have had big impact, of which the most important impact is to ensure the financial security and liquidity of the country in many aspects.
Firstly, it is the activeness in ensuring the repayment of foreign debt and interest when it is due as foreign debt scale has accounted for a large proportion of GDP (45.2 percent) while the principal and interest payment ratio of the State budget revenues is also quite large (around 25 percent).
Secondly, foreign exchange reserves help ensure a safe boundary compared to import scale on weekly basis (12 weeks following the standard about boundary) or on monthly basis (three months).
Thirdly, foreign exchange reserves will facilitate the active intervention in foreign exchange market when there is negative impact on the market in the context of Vietnam’s high openness (with the import/GDP ratio ranking high in the world).
Fourthly, this is the basis for prestigious credit rating agencies in the world to lift the grading for Vietnam’s financial-monetary market, enabling Vietnam to issue bonds in the international market.
Fifthly, increased foreign exchange reserves are an important basis for improving the confidence of the national currency, contributing to controlling inflation by objectives, stabilising exchange rates, and minimising the goldenisation and dollarisation.
It is expected that Vietnam’s foreign currency reserves will continue to increase thanks to positive formation, and decreased psychology of holding foreign currencies.
