The US had branded Vietnam as a manipulator on the financial market, but several months later, we see that the country is intervening in the foreign exchange market again, however, some specialists believe that it is an unusual method and has a lot of details to be taken into account.
The state bank of Vietnam made the announcement in January and told some local banks that it would stop purchasing the US dollars and in the spot market. Trades are usually settled within the days. Instead of this, traders were given another deal from the central bank, according to the three individuals and an examination of trading instructions issued by the SBV for one such deal, it would agree to buy dollars at a favorable rate for delivery in July, and it would allow the local banks to terminate the deal before mid-June if they so desired.
This was a brand new way of intervention that was not visible ever before. Many specialists believe that this action was taken in order to receive the attention of the US to the trades for further bilateral cooperation. However, the central bank of Vietnam has not responded to this claim so far.
While observing the situation, there was no suggestion made by Vietnam to the US and the central bank tried to justify its own actions by the fact that many banks are intervening in the currency market and moreover, in the official statements, the officials have always stated that the country will always try its own best to maintain the stability of the currency in the country to control the inflation rate for the economic well-being. Moreover, it is also important for the foreign exchange market, more precisely for the Forex trading in Vietnam since the market is always affected by even small fluctuations. However, the officials were still stating that the above-mentioned argument means that they do not think about taking advantage of this situation and do not seek further trade opportunities.
To say it briefly, the recent story of the economic actions of Vietnam consists of the growth in the export in the industries such as manufacturing and other goods and after China was facing the trade war with Washington, the economic actions of Vietnam were more active towards South-east Asia.
The market rate that was suggested by the central bank of Vietnam to the local banks was 23,125 dong per dollar. The information was approved by the three local banks that have been operating on the market for a long time already. The increase of the dong price would cause the increase of the premium over spot prices for the banks, while the decline would give them the opportunity to sell dollars in the spot market instead. It is also notable that the price of the national currency on the black market, where it is usually traded, had fallen 1.1 % and the reason for that was named to be the lack of dollar supply.
New transactions that resemble financial derivatives are known as forwards, which means that the parties are obliged to exchange currencies at a future date at an agreed rate. This means that central banks are given several advantages, they do not require cash up-front and will not be hardly affected by the sudden shifts in reserves. They are popular in other countries as well, such as India, Taiwan, and South Korea, all of them being major economies.
- Vietnam, U.S. reach agreement over U.S.’s designation of Vietnam as currency manipulator
- Why Vietnam’s central bank bought about $25 billion worth of U.S. dollars over the past two years?
- USD/VND exchange rate forecast to remain stable until year-end
- USD/VND rate expected to remain stable until year-end
- Why the U.S stopped labeling Vietnam as currency manipulator?
- Vietnam rejects ‘currency manipulator’ label
- Vietnamese currency under bigger pressure in 2020
- Japan, Malaysia sign 3 billion USD currency swap deal
- Stopping foreign currency loans needs to harmonise exchange rate