Vietnam Economists Call for Immediate Dong Devaluation

Tuan Minh

11:52 18/12/2015

BizLIVE - A number of Vietnamese economists have advocated the local banking authority should devalue the dong now, after the Fed has announced to raise its benchmark interest rate.

Vietnam Economists Call for Immediate Dong Devaluation

Economists Le Dang Doanh (L) and Do Thien Anh Tuan (R).

Le Dang Doanh, former director of the Central Institute for Economic Management (CIEM), told BizLIVE that the State Bank of Vietnam (SBV) needs to follow market movements and weaken the USD/VND rate right by the end of this year to buttress exports.
He reasoned that the Fed’s decision to hike its policy rate by 0.25 percentage point will cause other currencies such as the euro, the Japanese yen and the Chinese renminbi to lose value.
The weakening of the dong could lead to an increase of Vietnam’s public debt, but such a rise could be offset by external trade. “Such an interaction will help improve the country’s balance of payments,” he added.
Sharing the same view, Do Thien Anh Tuan, a lecturer at the Fulbright Economics Teaching Program, urged the SBV to revalue the dong because the currency is overvalued.  
Speaking to BizLIVE, the lecturer commented that the Fed’s rate increase will prompt other central banks to raise interest rates to retain foreign capital. The move will hamper foreign indirect investment in Vietnam, which somehow will affect the USD/VND rate.
In such a scenario, the SBV needs to either devalue the dong or increase interest rates. In the first case, if the SBV opts for not adjusting the forex rate, interest rates in the dong will rise, which will dampen domestic production.
In the second case, if the SBV chooses to weaken the dong, it will be able to keep interest rates stable and help boost the export sector. “In my opinion, adjusting the forex rate is an easier option,” Mr. Tuan said.
The economist said the SBV should not set a rigid target for the movement of the USD/VND rate. It should allow the rate to move in line with global and domestic developments instead.


Từ khóa: SBV, USD/VND, Le Dang Doanh