In the context of the US-China trade war, some analysts believe that Vietnam needs to devalue the dong to help its enterprises boost exports. Others said this will do more harm than good because the action will increase costs for input material imports for domestic production.

Asked if Vietnam would devalue the dong to support export in the context of the yuan depreciation, Deputy Governor of the State Bank (SBV) Nguyen Thi Hong said at a press conference that SBV doesn’t aim at single purpose in regulating the exchange rate, but strives for macroeconomic management.

Hong went on to say that Vietnam needs to keep close watch over the performance of many currencies, not only the yuan, when regulating the forex policy.

Meanwhile, Andreas Hauskrecht from Indiana University said in order to stabilize the forex market and exchange rate, Vietnam needs to be firmly determined in the fight against dollarization, aiming to stop capital mobilization and lending in dollar.

The expert stressed that in other countries, commercial banks don’t accept deposits in non-local currencies. To date, the Vietnam dong has been perched on the US dollar, but the State Bank needs to be more flexible in the time to come to create stability for monetary policies.

In the past, as the inflation rate was always high, the dollarization in Vietnam was alarming. The amount of deposits in foreign currencies amounted to 20 percent of the total money supply in 2007-2011. The ratio was even higher, in 1990s, at 30-40 percent.

At that time, people made payments in dollars and hoarded dollars, while the dollar price in the black market was by far higher than the official market, thus putting pressure on the official market. The uncertainties in exchange rate and the forex market in that period was one of the causes behind macroeconomic uncertainties. 

In such a context, the central bank, in order to implement the task of fighting against  dollarization, decided to apply the zero-percent interest rate policy for dollar deposits. This means that dollar depositors cannot make any profits with the foreign currencies deposited at banks.

The policy was believed to help reduce the dollarization ratio from 11.06 percent in 2014 to 8.21 percent in late 2017. 

A finance expert affirmed that the zero-percent interest rate policy has not had any negative impact on overseas remittances, foreign portfolio investment and FDI flow into Vietnam,

According to Can Van Luc, a banking expert, the dong depreciation of 3 percent would be ‘acceptable’ this year.

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Thanh Lich