Three main sources of Vietnam’s foreign currency include the disbursement of the FDI, trade surplus and M&A activities.
Vietnam’s strong foreign currency supply has been instrumental in stabilising the USD/VND exchange rate, according to Nguyen Duc Hung Linh, director of individual customer analysis and consultancy at SSI Securities.
Linh pointed to three main sources of Vietnam’s foreign currency, including the disbursement of the FDI, trade surplus and M&A activities.
Production shift from other countries coming to Vietnam has brought in a capital inflow worth billions of USD, said Linh in an interview with the National Assembly Television.
According to Linh, a stable USD/VND exchange rate would boost the confidence of foreign investors in Vietnam through both direct and indirect investments.
By preventing the VND from devaluing, Vietnam could avoid a hike in foreign debt, which currently accounts for 50 percent of the country’s GDP, Linh said.
A decrease by 1 percent in value of the local currency, thus, would increase the foreign debt by $1 billion.
Linh said the USD/VND exchange rate is influenced by both internal and external factors, in which the former would stabilise the exchange rate through managing interest rate and foreign currency reserves.
However, Linh said external factors are more unpredictable in nature, for example the devaluation of Chinese Yen (CNY). If the CNY is devalued by an additional of 10 percent, other currencies in the world may be subjected to adjustment.
An adjustment to the VND, if happens, would not cause any major impact to the economy, as the USD/VND exchange rate has been stable since the beginning of the year and the State Bank of Vietnam (SBV) still has room to adjust the rate, Linh asserted.
Bao Viet Securities in its monthly report said the SBV is predicted not to devalue the dong (VND) strongly (over 3 percent) to avoid the risk of being put into the US’s currency monitoring list.
