The State Bank of Vietnam (SBV), the country’s central bank, is pondering a new management mechanism for the USD/VND rate that can be adjusted daily, SBV Governor Nguyen Van Binh told local media.
The SBV now sets a midpoint rate of 21,890 for the USD-VND pair, and the forex rate can move 3% on either side of the rate.
The banking authority is taking steps to apply the so-called ‘interbank forex rate’, which can be revised up/down frequently, even on a daily basis, to reflect more accurately market movements, especially those in the global market, he added.
“With the new mechanism, the forex rate can undergo changes daily with more flexibility and within the SBV’s control. People and businesses will gradually get used to those changes, and will not feel jittery like in the recent adjustments,” Mr. Binh told the Online Vietnam Economic Times (VnEconomy.vn).
The new mechanism will reduce speculation on the foreign currency. Meanwhile, the existing trading band of the USD/VND rate still allows dollar speculators to make profits, the governor said.
The new mechanism is being built and discussed by market participants and experts before being put into practice in a suitable timing, Mr. Binh tipped.
A bank employee counts U.S. dollars in Vietnam. (Photo: Internet)
According to VnEconomy.vn, one in place, the new forex rate will be announced before the market opens and will be adjusted in alignment with market factors.
The ‘interbank forex rate’ will have three components: (i) the rate will be calculated in correlation with an eight-currency basket, (ii) the supply-demand of forex in the market, and (iii) macroeconomic balance. The Vietnamese dong is currently pegged to the U.S. dollar only.
According to several experts and bankers, the new mechanism fits Vietnam and will be more market-oriented and move in tandem with market fluctuations, especially external factors. It is similar to the way that the Chinese central bank is doing with its USD/CNY now.
Nguyen Xuan Thanh, a lecturer at the Fulbright Economics Teaching Program, told BizLIVE that the new forex mechanism is a ‘crawling’ one, which will help the SBV manage the forex rate without having to selling foreign currencies to intervene in the market.
After news on the new mechanism came out on Monday, banks made deep cuts to prices of the greenback. State-controlled Vietcombank quoted the currency at only VND22,510 for ask, down 37 dong from a day earlier. The bid price for the greenback at most banks was 22,440 dong a dollar.