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US dollar still at 25,450 dong level, more FX reserves needed

US dollars were being sold for 25,484 Vietnamese dong Sunday at some banks. This is above the 25,450 mark at which the State Bank of Vietnam has intervened by spending foreign currency reserves in the past. On the black market, US dollars were even higher selling for 25,800 a piece.

In recent weeks, the State Bank of Vietnam has spent an estimated US$500 to 700 million of its foreign exchange reserves in an attempt to prop up the dong, according to WiResearch. The firm has also estimated Vietnam’s forex reserves to be at around US$90 billion–Vietnam’s imports were just over US$30 billion in April and based on these estimates, Vietnam’s forex reserves would now be below the three months’ worth of imports recommended by the International Monetary Fund.

That aside, these regular interventions to ‘stabilise’ the local currency against the dollar have caused challenges doing business in other regional currencies.

Last week it was reported that the Japanese yen and the South Korean won are both depreciating against the US dollar and subsequently are also depreciating against the Vietnamese dong. This is making overseas Vietnamese reluctant to remit money earned overseas back to Vietnam and could also potentially impact the tourism industry with Vietnam becoming a more expensive place to travel.

For some background, the Vietnamese dong is on a managed peg. Each day the State Bank of Vietnam sets a base rate and financial institutions are permitted to trade the local currency up to 5 percent on either side. Managing this peg, however, has proved challenging over the last year or two and this has at times led to erratic fluctuations in the currency.

For more information see: The Dong’s Wild Ride: Unpacked 2024

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