VietNamNet Bridge – Vietnam’s heavy dependence on the US dollar gives it few policy choices, the Vietnam Business Forum’s Macro-economic Policy Working Group (MAG) has commented.

Hoang Thanh Hung, a tour guide, sighed with relief when informed that he finally could sell the hundreds of yuan he has kept after returning from a trip to China last month.

Nearly all the banks Hung came to refused to buy yuan. A few of the banks quoted the dong/yuan exchange rate, but only some of them bought yuan in reality, while others said they did not accepted cash. Only one bank agreed to make the transaction.

Yuan, the currency of China, the second largest economy in the world, and Vietnam’s biggest trade partner, has never gotten a foothold on the foreign exchange market in Vietnam.

If it were the greenback, Hung could have sold it to any banks. The US dollar is the major foreign currency used by businesses and individuals in their foreign trade.

This explains why the dong/dollar exchange rate is always an important factor policy makers refer to when considering management policies.

Experts: heavy dependence on US dollar not good for Vietnam

The report released by MAG last week pointed out that Vietnam’s dollar-pegged foreign exchange policy has had a negative impact on its trade balance.

While Vietnam has been pegged to the US dollar, its exports to the US account for less than 20 percent of total export turnover, while imports from the US make up only four percent of total imports.

In 2013, total Vietnam-US import-export turnover amounted to only 11 percent of total import-export turnover. Meanwhile, the Vietnam-China turnover amounted to 19 percent, with Vietnam-Japan at 9.5 percent and Vietnam-EU at 12.8 percent.

In terms of Vietnam’s sovereign debts, its biggest creditors in 2012 included Japan (34.5 percent of Vietnam’s total foreign debts), the World Bank (28.8 percent), and ADB (15.5 percent). As such, Vietnam’s foreign debts have been valuated not only in the US dollar, but also in other hard foreign currencies, including JPY, SDR and EUR.

A report showed that 38.8 percent of Vietnam’s foreign debt by December 2010 had been in JPY, 27.1 percent in SDR, 22.2 percent in US dollars and 9.2 percent in EUR.

MAG’s experts commented that it is unreasonable for Vietnam to follow a dollar-pegged foreign exchange policy, while its trade and foreign debts depend on other foreign currencies.

This has affected the bilateral trade and investment between Vietnam and other big partners, while this cannot truly reflect the economic relations between them, especially in the current context of the US dollar’s heavy fluctuations.

Therefore, Vietnam has been recommended to apply a new foreign exchange policy which allows it to valuate the Vietnam dong in correlation with more than one foreign currency. This will be a reasonable choice which helps both stabilize the exchange rates and ensure the flexibility of the nation’s policies.

Now is the right time for Vietnam to follow the new policy, as it now has all the necessary conditions to do this. Vietnam has wide economic openness, but it <does | should>not depend on any one trade partner.

Therefore, if it were to apply the policy, Vietnam would be safe from the shocks in other foreign currency markets, if and when they occur.

TBKTVN