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12 Jan 2021

Econ Digest

Vietnam is listed as a currency manipulation country

      The US designated Vietnam as a currency manipulation country, primarily due to Vietnam's interference in the Dong as evidenced by Vietnam’s net foreign currency purchases, which were equivalent to 5.1 percent of GDP, exceeding the benchmark set at 2.0 percent of GDP. The State Bank of Vietnam (SBV) may be pressured to revalue the Dong in the range of 5 to 7 percent so as to minimize the risk of trade retaliation from the US.

       In the past, the weak Dong has been one of the factors helping support exports from Vietnam, which is already competitive in terms of manufacturing and attracts more foreign investment than its rivals. For this reason, Vietnam can bolster its production and exports at a faster rate, which can be seen from the fact that throughout the past decade Vietnam's export value accelerated four times from USD 72 billion in 2009 to USD 260 billion in 2019, surpassing Thailand for the first time.

        Such a situation leads to the following question: if the Vietnamese Dong appreciates, will it affect Vietnamese exports, and result in Vietnam losing competitiveness to rival countries, especially Thailand, or not?

        We at KResearch are of the view that the structure of production in Vietnam mostly focuses on labor-intensive industries and low production costs. Therefore, the appreciation of the Dong by 5 to 7 percent is unlikely to affect the export margin much, and Vietnam will maintain its competitiveness in manufacturing and exporting for a while.

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Econ Digest