Trade deficit in Vietnam

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Trade deficit in Vietnam
INTL FINANCE Dr MICHEL-HENRY BOUCHET
VIETNAM EXCHANGE RATE MANAGEMENT

• Group 4
• Nguyen Kim Ngan
• Nguyen Nhu Phuong Thao
• Nguyen Ngoc Minh Quyen
• Nguyen Thi Ngoc Van

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State Bank of Vietnam

• Established in 1951
• Objectives
• Control of
• Monetary system
• Operation of banking system
• Public services
• Being representative of public capital in state-
• owned banks
• Governmental body

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Exchange rate mechanisms in VN

• Multiple exchange rate before 1987
• Fixed exchange rate from 1987 to 1997
• 1987 1991
• Trading of foreign currencies based on plan
• Lack of currencies in trading, mainly RUB
• 1991 1997
• Established center of foreign exchange trading
  in 1991 for banks and economics entities
• Since 1994, set up interbank market ? separate
  primary and secondary exchange market

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Exchange rate mechanisms in VN

• Managed float exchange rate since 1997
• Implement managed float exchange rate to USD/VND
  and apply exchange rate margin
• Other currency rates are decided by buyers
  sellers
• SBV is the final intervener refer to national
  monetary objectives

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Miles stone

• 1991-1997 11,000 VND policy -gt nominal anchor
  
• (reducing inflation into
  lowest level)
• 1997-1999 /- 5 (from Feb Oct)
• /- 10 (11,750-11,800)(Oct 1997-Feb 1999)
• (the Asian financial crisis)
• 1999-Feb central rate was now set daily at
  the average
• of interbank exchange
  rates on the previous
• transaction day with a
  very narrow band of
• /- 0.1 (from SBV)
• 2002-July /- 0.25
• 2007-Jan /- 0.5
• 2007-Dec /- 0.75
• 2008-Mar /- 1

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Current mechanism
Head of SBVs Foreign Exchange Department Mr.
Truong Van Phu?c said that SBV has been step by
step floating the exchange rate, the spread for
floating has been widening gradually
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Goals of exchange rate policy

• Can be changed according to the overall policies
  of the nation
• Currently
• Stable exchange rate in terms of supply and
  demand in
• export and import
• Improve BoP
• Increase foreign currencies reserve
• Avoid dollarization
• Prevention of currency crisis
• Minimizing the impact of various external shocks

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The movement of USD/VND
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Current situation

• Large trade deficit since 2007

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Current situation

• High CPI inflation at double-digit level

food
Gold
foodstuff
CPI
USD
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Vietnam Government s dilemma

• The priority effort to defeat inflation
• Stronger VND will curb the price of import and
  control inflation
• But weaker VND can prevent a balance of payment
  crisis
• ? What can the government do up to year end?

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Some forecasts

• It is obvious that the Government will curb
  the inflation through series of financial
  instruments/methods interest rate, liquidity
  withdrawal, credit control, exchange rate,
• ? How the exchange rate will be?

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Some forecasts

• The SBV will maintain the current managed
  floating exchange rate regime
• The exchange rate will be
• Maintained stably at moderate downward crawl
  against the USD
• Step-by-step floating, firstly with the larger of
  spread based on the interbank exchange rate
  (currently is /-1).
• Lower (i.e. VND value is enhanced) gradually and
  carefully
• SBV will not intervene directly to the exchange
  rate but the changes of interest rate and
  liquidity withdrawal will affect the exchange rate

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Thanks for your attention
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