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Ex-central banker calls for idening currency trading band
The State Bank of Vietnam (SBV) should widen the US dollar trading band to help commercial banks set exchange rates more flexibly, a former central bank chief said.
SBV ex-governor Cao Sy Kiem told Thanh Nien Daily: “In 2009 the exchange rate will see a lot of volatility. We should flexibly adjust the rate, not letting it move too high or too low so that both firms with large dollar loans and exporters benefit.”
The dong Tuesday traded at VND16,970 per dollar in the interbank market in Hanoi, compared with VND16,972 Monday, according to the SBV.
Inter-bank forex trade is only permitted within a band of 3 percent on either side of a midpoint set daily by the central bank.
The rate in unofficial markets in Hanoi and Ho Chi Minh City Tuesday was around VND17,640. Last Friday it hit VND17,670, according to telephone directory information service 1080, run by state-owned Vietnam Posts and Telecommunications.
“The depreciation of the dong in line with supply and demand is indispensable to combat the economic slowdown, help firms remain stable, and enable them to grow when the world economy recovers,” Kiem said.
Economist Bui Kien Thanh said the dong would depreciate this year since inflation is not expected to be fully tamed. “Inflation is still over 10 percent, so the exchange rate will be affected.”
The dong would also be devalued to support exports, he said, noting that the central bank should control the depreciation to ensure it is orderly.
Citigroup forecast in January the dong would depreciate to VND17,948 per dollar by the end of 2009 – around 2.6 percent below the current interbank rate of VND17,484 – due to a decline in exports, tighter foreign direct investment and lower remittances from Vietnamese abroad.
Vu Thanh Son, general director of the Hanoi Trade Corporation, said: “A number of countries have depreciated their currencies. If Vietnam does not adjust exchange rates, it will not improve export competitiveness.”
The country should consider the benefits of both exporters and importers and publicize a devaluation roadmap, he said.
Central bank rejects devaluation
But SBV Deputy Governor Nguyen Dong Tien told a conference in Hanoi Tuesday that currency devaluation is unwanted in some countries. The depreciation of the dong would affect inflation, bank deposits and people’s trust in the government’s economic management.
“There will not be a devaluation of the dong this year. In 2008, the dong fell 9.5 percent. This is already a big depreciation. The exchange rate policy has to be considered in many aspects, not just exports,” he said, noting that the dong fell just 1-2 percent in past years, but exports still grew over 20 percent.
To minimize risks from exchange rate fluctuations, firms should not speculate in dollars or believe rumors, Kiem said, adding that the SBV has said it has enough dollar reserves to cover imports.
In early February, the reserve stood at US$22 billion, slightly up from $21.9 billion estimated last October, according to the SBV.
Ngan Anh
Thanh nien
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