particularly the CNY and GBP.
• Foreign currency demand pick-up may increase again by seasonal factor to
meet year-end payment demand and FED's ability to raise interest rates in
to diverse itself, both scale and depth.
Mean while, the foreign exchange management in VN still considered to be
inadequate. For the current transaction, VN has removed regulation in
transforming foreign exchange and payment but still regulation in files and
documents which are really complicated. Modern transaction such as
internet banking, card payment, don’t have any regulation, also guide of how
to use these product.
Inconvenience also shown in funding transaction, documents for this
problem is decree no 63/NĐ – CP from the government have been
established for 7 years. The contents are not in details.
After being accepted to follow the term VIII by IMF. Regulation about
freedom in current transaction will be important condition for VN in joining
On the other hand, need flexible regulation about foreign exchange market
with subject participate in the market and market’s tools.
Funding transaction should be emphasized in management through cash
flow in and out of foreign account open by bank.
CHAPTER 2: : Vietnam’s management measures in
cotrolling foregin exchange market
Domestic currency devaluation: includes government interventions so that the
domestic currency becomes less valued.
- Domestic currency appreciation: includes government interventions so that the
domestic currency becomes more appreciated.
- Exchange rate behavior to a certain degree is the maintenance behavior of the
government to maintain a stable exchange rate.
- Do not intervene, let exchange rates fluctuate freely according to market supply
It includes some tools like: rediscount rates, tariffs, qoutas, prices,… in which
rediscount rates are most commonly used.
Rediscount Rates: Central Bank increases rediscount rate will effect on
market interest rate; when the market interest rate raises, foreign currency
capitals run into to make domestic currency increases. And when rediscount
rate decrease, the domestic currency will fall down.
Tariffs: High tariff will makes limit import, the foreign currency demand
also decrease, leading to domestic currency increase. Low tariff has opposite
Qoutas: Have the same effect like tariff
Prices: Through the price, Government can support price for strategic
exports goods or in early stages of production. Export subsidies help
increase export volume and domestic currency raises. Besides, government
price subsidies for necessary goods import, it makes domestic currency
In addition to, government also has other measures:
Adjusting the reserve requirement ratio in foreign currency for commercial
The ceiling interest rate regulation is less attractive to deposits in foreign
volatile or fluctuations, countries often use the exchange stabilization fund
as one of the tools to adjust the exchange rate. The source of funds for the
formation of the exchange stabilization fund may be:
- Issue treasury bonds in national currency.
- Use gold to fund exchange stabilization.
Currency devaluation tool:
- Devaluing a currency is raising or lowering the purchasing power of that
currency relative to other currencies. The result of currency devaluation
will directly affect the increase or decrease of the exchange rate.
Devaluing the currency is a powerful and extreme measure that is used
only in rich economies but is confronted with the economic downturn
coupled with increasingly severe inflation or the lost balance of
- In Vietnam, we have only done a low level of currency depreciation. We
are still trying to use all other possible measures to manage the exchange
rate before using the devaluation tool. Recently the VND has been under
pressure to depreciate and many economists have suggested using this
tool in the current Vietnamese economy.
Vietnam's exchange rate mechanism from 1989 to 2013
- Commercial banks are allowed to set
trading rates within +/- 5%.
- The use of foreign currency is strictly
- Controlling the use of foreign
currencies more closely; Limit bringing
money out of borders.
- Set up official foreign exchange
reserves to stabilize exchange rates.
- Established two foreign exchange
trading floors in Ho Chi Minh City and
- OER is formed based on bidding rates
on both exchanges; The central bank
intervened strongly on the two
- Exchange rates at commercial banks
fluctuate less than 0.5% announced
- The interbank foreign exchange
market was formed to replace the two
exchange trading floors; The SBV
continues to strongly intervene in this
- OER is formed and announced based
on interbank rates.
USD (February 16th 1998) and
12,998VND / USD (August 7th 1998)
- The OER announced the interbank
average on the previous day (February
- Exchange rates at commercial banks
dropped to no more than 0.1%.
- OER is fixed at 14,000VND / USD
- OER was gradually adjusted from
14,000 VND / USD in 2001 to 16,100
VND / USD in 2007.
- The exchange rate band at
commercial banks was adjusted to +/0.25% (from July 1st 2002 to December
31st 2006) and +/- 0.5% in 2007
- OER kept unchanged at 20,828
VND / USD from January 2012 to Jun
28th 2013, increased to 21,036 VND /
- Trading band is fixed +/- 1%
Sources: Central Bank.
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