Yuan revaluation to have minor impact

Truong Van Phuoc, head of the SBV’s foreign exchange department, said: “At the moment, the yuan plays a modest role in our economy and is not a hard and convertible currency on global exchange markets. So the yuan’s revaluation won’t have a negative impact on Vietnam-China trade.”
On July 24, China revalued the exchange rate of the yuan to the US dollar by 2.1 per cent to 8.11. Over the past few years, the currency was pegged to the US dollar at one dollar to 8.27 yuan.
In terms of foreign exchange, Phuoc said, the 2.1 per cent appreciation of the yuan, equalling a mere VND300 per dollar, was too small to have an impact on Vietnam’s trade with China. “Even if the yuan increases 5-7 per cent against the dollar, the impact will still be insignificant,” he noted.
Vietnam reportedly exported over $2.7 billion worth of goods to China last year, and posted a trade deficit of over $1.7 billion, 21.4 per cent more than the previous year.
Meanwhile some SBV officials said the yuan’s revaluation would even benefit Vietnam’s exports by weakening China’s exports to the US and EU — especially in textiles and footwear.
Changes in the exchange rates of the US dollar and the Vietnamese dong against the yuan would increase Vietnam’s exports to China, the officials added, slowing imports from the neighbouring country and resulting in a smaller trade deficit.
The changes would have little impact on Vietnam’s financial market in general and Vietnam’s banking system in particular, as the yuan, not yet a hard and convertible currency, is barely used in Vietnam’s international payments and reserve currencies, they said.
Asked about Vietnam’s reaction to the revaluation in China, a neighbour with a huge population and many trade relations with Vietnam, Phuoc said: “The revaluation was anticipated, and we will watch the yuan’s movement closely so we can make informed decisions.
“Any changes in the State’s foreign reserve should be carefully considered, as it’s based on a currency basket. It’s the entire economy, not just one currency, that determines the foreign reserve structure, and our economy has not been strongly influenced by the yuan revaluation,” said Phuoc.
Regarding foreign investment, Le Xuan Nghia, head of SBV’s banking development strategy department, said: “In the long run, the appreciation will increase foreign investment in Vietnam.”
Changes in the exchange rates of the US dollar and Vietnamese dong against the Chinese yuan would likely cause potential foreign investors to shift investment from China to Vietnam, even though China offered the highest competition for foreign investment in the region, Nghia noted.
Meanwhile, analysis of China’s Xinhua news agency said the revaluation of yuan could cause some side-effects in the country.
Loans from China would cost more, the news agency said, noting that Vietnam received $315 million dollars worth of official development assistance from China alone.
–More on revaluation page 23