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Expert: In regulating exchange rate, breaking words is taboo
It is necessary to take measures to attract dollars into banks, while the cash outflow from banks also needs to go through smoothly. The State Bank needs to react quickly in emergency siatuations, according to Cao Sy Kiem, former Governor of the State Bank of Vietnam, and a well known economist.
Kiem talked with VietNamNet on the sideline of the National Assembly’s session on Oct. 21 on the dong/dollar exchange rate, the burning issue in the recent days.
What are the most important factors that need to be considered when making the decisions to adjust the exchange rate?
I think that there are three main things we need to consider.
First of all, we need to find out if the exchange rate adjustment can further help boost export. In fact, the costs of the production for export are very high, because we have to import 40-50 percent of materials needed.
There’s a risk that the more we export, the more materials we have to import.
Secondly, if the prices of foreign currencies are too high, Vietnam’s trade deficit will increase. Meanwhile, if the dollar depreciates, Vietnam will “import inflation” from other countries
Thirdly, if the exchange rate cannot be managed, the appreciation of the dollar will make our debt burden heavier.
What are the things Vietnam should take care of now while the United States and China are waging a currency war?
The dispute between the US and China will surely affect Vietnam. When Chinese yuan is cheap, Chinese goods become cheaper than Vietnamese goods, with negative consequences for us: Stagnant production, lack of jobs and low purchasing power.
Vietnam needs to increase its productivity, and control the imports from China. Non-tariff barriers are tools which can be used effectively.
China has suggested using Chinese yuan in ASEAN trade? What do you think about that?
This is the wish of China. However, a lot of things need to be done and discussed to turn a local currency into the currency used in international trade.
What do you think about the inflation rate?
It is true that the inflation tends to increase. However, I think that the inflation rate in 2010 would only be around eight percent.
While the dollar value in the world is decreasing, it is increasing in Vietnam. How would you explain this?
Vietnam mostly uses the dollar, while it pays less attention to other foreign currencies.
Besides, people now fear that the inflation rate will be high and believe that the US economy will recover. Therefore, they rush to buy dollars.
What are the solutions to the exchange rate issue then?
The best solution lies in the way the State Bank regulates the exchange rate. The State Bank needs react quickly in emergency situations. For example, the State Bank needs to raise its voice every time there is false rumour. The State Bank needs to regularly provide people with updated information in order to reassure them. And more importantly, it is necessary to keep promises.
Cao Nhat
vietnamnet
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