Several experts have suggested that the State Bank of Vietnam take efforts to stabilize the local currency rather than weakening Vietnam dong to sharpen competitiveness of local commodities, reasoning that sharp depreciation will do more harm than good for the economy.

A bank teller counts U.S. dollar bills. Experts suggest the central bank take efforts to stabilize the local currency rather than weakening Vietnam dong

Although it is widely believed that a weaker Vietnam dong will help bolster the country’s exports, any calculations towards this plan may be wrong-footed under the current situation, news website Dau Tu Tai Chinh reports.

Nguyen Khac Quoc Bao, dean of the Finance Faculty at the HCMC-based Economics University, asserted in the online outlet that while it is still uncertain that depreciation of the local currency will spur exports, its consequences for the economy will be grave.

“Many people say that weakening the local currency will help enhance the competitiveness of local exports, but in my opinion, such an argument no longer works under the current situation,” he said.

“A weaker Vietnam dong will make Vietnamese commodities cheaper on the global market, but whether exports will surge on a weaker currency also depends on the quality, brands. It also depends on whether such commodities are included in global value chains or not,” he said, adding exports now are also governed by quotas and other trade tools.

Therefore, while depreciating the local currency will in no certain terms rev up exports, such a move will have huge negative impacts on the economy, according to the expert. Bao said that in Vietnam, the exchange rate is highly sensitive, and any changes will affect the public confidence in Vietnam dong.

In addition, Vietnam is facing a high inflation pressure, as the consumer price index has exceeded 3% compared to the target of 4% endorsed by the National Assembly. The Government has urged relevant agencies to control inflation, and therefore, any step to weaken the local currency will go against the Government’s direction.

Other experts also suggested that the local currency will remain relatively stable against the U.S. dollar, although the greenback has surged by over 2% this year to some VND23,345 to the dollar at banks and some VND23,500 on the unofficial market.

Bui Quoc Dung, assistant to the head of the Central Economic Commission, said on Dau Tu Tai Chinh that Vietnam dong has weakened against the greenback, but such depreciation of one to two percent is normal and necessary in the central bank’s routine management. In the coming time, Dung said, the local currency may fall further, but any changes will only be situational because the supply-demand balance remains steady.

The central bank has reiterated its stance to make intervention to sell the foreign currency onto the market, and if the divestment of State capital in State-owned enterprises goes as planned, there will be more foreign currency flowing into the local market, supporting Vietnam dong, according to Dung.

Nguyen Duc Thanh, president of the Vietnam Institute for Economic and Policy Research, noted that the sharp appreciation of the U.S. dollar and the strong weakening of China’s yuan expose Vietnam to risks as the U.S. and China are Vietnam’s two biggest trade partners. Despite such implications, Thanh suggested that the central bank could weaken the local currency a little bit, by a margin much thinner than China’s 5.4% depreciation for its yuan in the second quarter.

As Vietnam imports bulky amounts of materials from China and exports big volumes to the United States, the central bank could deliberate a depreciation level of 2-3% for the local currency, Thanh said in the news website.

Also according to Thanh, the central bank has bought US$11 billion in the first half of this year to buoy the national foreign reserves to US$63 billion, and this effort should be continued to bolster confidence in the local economy.

SGT