With pressure on the dong easing in anticipation of a US rate cut next week, the State Bank of Vietnam has moved to replenish its US dollar supply, Vietstock has reported. The bank wants to buy US$100 million worth of dollars which will be its second purchase this month having secured US$150 million worth of dollars back on September 6.
For background, the SBV burned through about US$6 billion worth of its US dollar reserves between the end of April and the end of June this year in order to prevent the devaluation of the local currency. This brought its reserves down to around US$87 billion, several billion dollars shy of the three months worth of imports the International Monetary Fund recommends.
Based on Vietnam’s imports in August, which reached US$33.7 million, and the aforementioned IMF recommendation, Vietnam’s currency reserves should be around US$101.1 billion which will require an additional US$13.7 billion worth of US dollar purchases.
Notably, this may be problematic with Vietnam already on the US currency manipulator watchlist after meeting two of the three criteria, namely a material account surplus greater than 3 percent of GDP and a goods surplus with the US greater than US$15 billion. It has thus far, however, failed to meet the third criteria: foreign currency purchases in eight out of 12 consecutive months, worth more than 2 percent of GDP.
Vietnam’s GDP is around US$430 billion. Foreign currency purchases worth US$13.7 billion would therefore be about 3.19 percent fo GDP.
See also: Vietnam Banking and Finance News