8/11/2019 ESP II.vietnam
1/3
3. Vietnam: Shoul we devalue the exchange rate?
Currently, the State bank of Vietnam adjusts USD / VND rate with
increasing by 1-2% / year, but
VND is overvalued more than 20%, some ideas that should devalue
VND at 3 usd -4% / year.
Then Should we devalue the rate? According to recent documents
on economic newspaperssuch as vneconomy.vn, intestment, VOV,....
our group concluded 6 basic reasons for not
devaluating VND
First, theoretically, adjusting exchange rate is to be
comparable to the inflation rates between 2
countries. Practically, Vietnam and the United States have
disparate infation rates, therefore, It
should not be based on inflations for exchange rate
adjustment:
Infations of Vietnam and USD from 2009 - 2013
2009 2010 2011 2012 2013
The USA -0.4 1.6 3.2 2.1 1.5VN 6.8 11.75 18.12 6.81 6.04
Second, though some argue that exchange rates should be adjusted
to support exports,
Vietnam's experience showed that exchange rate adjustment had no
significant impact to the
international trade. The reason is that Vietnam is a small
economy with a large aperture. Many
essential items meeting the needs of domestic consumption is
imported, but domestic
production is not enough to replace; over 70% of imported goods
is to serve domestic
production and exports.
Third, Vietnam's foreign debt index is not good, according to
the Ministry of Finance, Vietnam's
foreign debt by the end of 2013 was 56.2 % GDP Therefore, the
exchange rate devaluation
would also increase the burden of foreign debt, make significant
impacts to the national
financial security and sustainability of macroeconomic
stability
Fourth, foreign bank's experts themselves also said that Vietnam
dong is not overvalued. If
foreign investors considered Vietnam dong overvalued, they woul
do "speculation", but now
they have no moves whatsoever.
Fifth, exchange rate adjustment will increase inflation and
hamper Goverment's efforts to
stabilize the macro-economy
Finally, during this time, the Sate bank of Vietnam has kept
exchange rate market sentiment
stable and trust in VND. If the central bank devalue VND 3-4%
annually, there will be inceasing
in expected rates, will disrupt the State bank of Vietnam's
effort to stabilize the exchange rate
8/11/2019 ESP II.vietnam
2/3
and market sentiment; which lead to turbelent market and the
trust in the value of USD is
easily abraded
Vocabulary
ENGLISH DEFINITION VIETNAMESEdisparate There are a lot
differences Khc bit lnaperture An opening to allow something
mdomestic Inside the country Ni asustainability Can countinue for a
long time Tnh bn vngmacroeconomy Large economic systems Kinh tv
mspeculation Buy much goods because of
expecting it to have high priceu c
Whatsoever Not at all Chng g hthamper Prevent from achieving
something Ngn cn
disrupt Prevent from doing somthing Ngn cnMarket sentiment The
way market reacts with changes Tm l thtrngabrade damage Bo mn
LM POWER POINT
3. Vietnam: Should we devalue VND?
=> NO
6 reasons:
- Have disparate inflation rates
- Wont support International trade
- Foreign debt
- Foreign experts point of view
- Increase in inflation
- Disrupt ecnomony stability
( Ci ny l i vo cth, mi l do th hin bng sliu, con stng ng, mi l
do/slide)
- Have disparate infation rates:
