VietNamNet Bridge - Some economists have warned that if the government borrows money from the national foreign exchange reserves, the dong’s strength will be affected.

Bui Kien Thanh, a renowned economist, noted that legally, foreign exchange reserves could serve as a capital source from which the government can borrow when it needs money. However, the government has to receive the National Assembly’s nod on the loans, and the lending limit must be determined by the National Assembly.

Thanh said there are always two sides of a coin. If the foreign exchange reserves lend to the government, the reserves would reduce, which also means that the dong would weaken.

“The State Bank says there are $35 billion in foreign exchange reserves. Suppose that $30 billion would be lent to the government, there would be $5 billion left. If so, the dong will be weaker,” Thanh said.

“Chinese local currency is strong partially because of China’s big foreign exchange reserves,” Thanh said, explaining the relation between the foreign exchange reserves and the local currency value.

A banking expert, in his article on Thoi Bao Kinh Te Sai Gon, said that in international practice, the state cannot borrow money directly from foreign exchange reserves. It can only issue bonds in foreign currencies on the market for the State Bank to buy.

Meanwhile, Truong Van Phuoc, deputy chair of the National Finance Supervision Council, has reassured the public that relevant agencies will have to find out how much and how long to lend to ensure that lending will not affect the nation’s ability to fulfill international obligations.

The government has assigned the Ministry of Finance, State Bank of Vietnam and the Ministry of Planning and Investment to work on the issues.

Phuoc said that ensuring the value of the local currency is not a task assigned to foreign exchange reserves.

The value of the local currency can be reflected in two factors – the inflation rate and the exchange rate.

Meanwhile, the main function of foreign exchange reserves is to ensure Vietnam’s capability of supplying foreign currency to fulfill international payment obligations.

Phuoc, in an interview given to the local press, affirmed the legitimacy and the right of the government to borrow money from national foreign exchange reserves.

The 2013 Foreign Exchange Management Ordinance stipulates that the Prime Minister has the right to borrow from foreign exchange reserves, while the Ministry of Finance will follow necessary procedures to get the loans as instructed by the Prime Minister.

Decree No 50/2014 on foreign exchange reserves’ management also stipulates that the state can borrow from this source. 

Vietnam’s foreign exchange reserves have been increasing steadily over the last few years.

Dat Viet