Weighing up the FX conundrum

The sharp depreciation of US dollars on a global scale has made a number of countries mull the possibility of home currency devaluation to boost the competitive edge of their exports. In Vietnam, some experts voiced the need to take such a move but was strongly opposed by many others.

Dr. Le Dinh An, former director of National Centre for Socio-economic Information and Forecast, assumed the dong-US dollar exchange rate would not surpass VND21,500 per this year.

VIB Bank deputy director Le Quang Trung said devaluating the dong to support exports would not be a smart move since this would deflate confidence in the dong and not soften lending rates.

Besides, dong devaluation would make import goods more expensive, hurting the consumer price index.

“Theoretically, home currency devaluation would fuel exports. However, in Vietnam import content holds a big proportion of exports. A slight home currency devaluation could still make Vietnamese exports more expensive than foreign ones,” said deputy head of Central Institute for Economic Management’s Macro Economic Policy Department Nguyen Anh Duong.

Duong added this was evidenced by the fact that the real effective exchange rate (REER) was going down in recent years though the exchange rate was upwardly revised considerably.

In respect to foreign currency credit, Orient Commercial Bank (OCB) deputy director Pham Linh said the bank’s foreign currency credit rose markedly in the year to date. With rich US dollar reserves ($10 million) in the medium term funded by International Finance Corporation (IFC), the bank offers a 5.5 per cent per year dollar-denominated lending rate.

Foreign currency credit expanded more than 20 per cent in the first six months at Saigon-Hanoi Bank (SHB) and Military Bank (MB).

Commercial banks forecasted that foreign currency credit would hold up rising momentum until the year end stemmed from rising demands for import export payment by the year-end period. However, VIB bank deputy chief Le Quang Trung assumed the abrupt surge in the demand for greenbacks by the year-end was unlikely amid low consumption.