VietNamNet Bridge – The State Bank of Vietnam (SBV) on February 11 announced to depreciate Vietnamese dong by 9.3 percent against US Dollar and cut down the gap of rate fluctuation to 1 percent from 3 percent, aiming to ensure the high liquidity of the foreign exchange market and control the trade deficit.

The new exchange rate is effective from Feb 11.

As a result, the exchange rate of US Dollar ruled by commercial banks is 20,900, an increase by VND 1,400 compared to yesterday.

This is the highest increase of the exchange rate of Vietnamese Dong vs. US Dollar in the Vietnam’s currency history.

The bank said the increase was aimed at positively regulating the exchange rate, meeting demand of foreign currencies, ensuring high liquidity of the foreign exchange market, bringing a lasting improvement to Vietnam's gaping trade deficit and supporting the more flexible and  positive monetary policy.

Commenting on the bank’s decision, Head of Business Administration Faculty of the HCMC Bank University Le Tham Duong said that the amendment was likely strong but this is a consequence of keeping the exchange rate unchanged for a long time.

The bank should raise the exchange rate several times, he said.

However, the Government would like to stabilize the macro economy hence the bank had not changed the rate, he explained.

Mr Duong said that the amendment was adequate and right reflected supply and demand of US Dollars in the market.

Together with measures to cut down the excess of import by the Government, the increase of the exchange rate may help stabilize the rate for a long time, he added.

Today's amendment is the third and most significant move by the central bank since February last year. On February 10, Viet Nam depreciated the dong by 3.3 per cent and made another devaluation of 2.09 per cent on August 18 last year.

The fluctuation gap of 3 per cent daily trading band had been in place since November 2009. The widest trading band the central bank ever applied was plus/minus 5 per cent from March 24 to November 25, 2009.

Following is a timeline on recent changes in Vietnam's currency policy:

2002

July 1 - Dong trading band widened from +/-0.1 percent to +/-0.25 percent.

2006

Dec 31 - Dong trading band widened to +/-0.5 percent.

2007

- Dong is allowed to fall by just 0.12 percent against the dollar in 2007 in a managed decline.

Dec 24 - Dong trading band widened to +/-0.75 percent.

2008

March 10 - Central bank widens the band to +/-1 percent.

June 11 - Central bank devalues the dong by 2 percent by setting the mid-point reference rate at VND16,461 to a dollar in the face of double-digit inflation and a worsening balance of payments.

June 26 - The central bank doubles the trading band to +/-2 percent, yielding to market pressure for the currency to fall at a time of sustained double-digit inflation and wide trade deficits. The bank also bans the trading of US dollars and dong via a third currency.

Nov 7 - Central bank widens the band to +/-3 percent in a move widely seen as designed to allow the currency to depreciate so that exports can help the country's growth. The dong weakens to the new band's limit.

Dec 25 - Central bank devalues the dong by 3 percent by adjusting the mid-point reference rate to VND16,989 per dollar from VND16,494 per dollar.

Dec 31 - The dong ends the year down 8.2 percent against the US dollar on interbank markets. Based on the official mid-point reference rate, the dong ends the year down 5.2 percent.

2009

March 24 - Central bank widens trading band to +/-5 percent. The mid-point reference rate stays steady, but in trade the dong quickly weakens to the new band's limit. On the unofficial market it soon moves beyond the weak end of the band.

Nov 10 - Dong slips past VND19,000 per dollar on the black market.

Nov 11 - Vietnam announces a resumption of gold imports after a 1-1/2-year ban after a sharp rise in prices led to a scramble for dollars and pushed the dong lower.

Nov 17 - Finance minister says Vietnam will not devalue the dong.

Nov 25 - Vietnam announces it will devalue the dong by 5.44 percent by weakening the mid-point set by the central bank. It also narrows the trading band to +/-3 percent from +/-5 percent, effective November 26, and raises interest rates.

Dec 31 - Vietnam orders the country's 20-odd gold trading floors that allow investors to leverage bets on the precious metal to close by March 30. Central bank later orders overseas gold trading accounts closed.

2010

Feb 10 - Central bank announces it will devalue the dong by 3.25 percent by lowering the mid-point to VND18,544. It also puts a 1 percent cap on dollar deposits. The moves take effect February 11.

July - After about three months of trading within the currency band, the unofficial, or parallel, rate sinks below the low limit again to trade outside the band, steadily weakening.

Aug 17 - State Bank of Vietnam announces that it will lower the reference rate to VND18,932 per dollar on August 18 from VND18,544, where it had been held since early February, "to contribute to controlling the trade deficit."

Late Sept - On the unofficial market the dong falls back out of its trading band.

Nov 4 - Government rules out a rate "adjustment" before Tet, the lunar new year festival, which falls in the first week of February 2011, and vows to tap foreign exchange reserves to keep the dong from sliding.

Late Nov - Dong slips to lows around VND21,500 per dollar on the black market.

2011

Feb 11 - Central bank devalues dong by 8.5 percent to VND20,693 per dollar from VND18,932 and narrows the trading band around the midpoint to 1 percent from 3 percent.

NOTE: State Bank of Vietnam rules allow dollar/dong transactions to move in a band around a mid-point reference rate set daily.

Source: SGGP/Reuters