At the 2019 Banking Forum held by the State Bank of Vietnam (SBV) recently, economic expert Vo Tri Thanh showed a remarkable views on the capital injection and withdrawal of the management agency.
According to Thanh, the ability of the SBV to inject and withdraw money is currently very good, with the biggest goal of increasing foreign currency reserves. However, Thanh expressed concern that the SBV now relies heavily on the issuance of bills in withdrawing money (in order to balance the amount of dong injected to buy foreign currency).
The expert believed that it is not good in the long term. Firstly, the issuance of bills makes the SBV to bear costs (the interest rates of bills).
“Secondly, it limits the rapid and good development of the bond market in particular and the valuable paper market in general,” said Thanh.
Responding the opinion of expert Thanh, the SBV’s deputy Governor Nguyen Thi Hong said that “Withdrawing money is an art, a skill”. Hong added that the openness of the Vietnam’s economy, the ratio of import and export on Gross Domestic Product (GDP) is more than 200 percent, and import on GDP is about 100 percent of GDP, which means that domestic production largely depends on the import of goods, materials and machinery.
According to Hong “it is necessary to continue accumulating the national foreign exchange reserves in order to be ready for market stabilisation, especially for Vietnam’s foreign exchange market which is not only affected by economic factors but also from market expectations.”
“Of all the tools to withdraw money, we have considered very carefully. The transfer of State Treasury deposits to the SBV has been implemented in the recent years while it was not seen before. However, compared to the money the SBV injected to buy foreign currency, further withdrawal is still needed in order to maintain the inflation target,” said SBV’s representative.
The SBV’s leader said that it is not possible to withdraw money by compulsory reserve instruments in the context of the credit institution (CI) restructuring because it affects liquidity. “Therefore, we issues SBV bills. This method is very flexible. CIs which buy foreign currency from residents and sell to the SBV would have liquidity. For CIs with less abundant liquidity, the bill issuance is a flexible tool. Thus, the SBV can withdraw capital without influencing the interest rate level,” said the SBV’s deputy Governor.
“We do not attach much important on the cost when we run the monetary policy, the ultimate goal is macroeconomic stability,” said the SBV’s deputy Governor. She added that if there is no such cost, when the market is not stable and the exchange rate or interest rate immediately fluctuate, the costs of businesses or economic costs in general and Vietnam’s foreign capital attraction will be affected. According to Hong, these costs cannot be calculated.
