Sep 24, 2010. Vietnam must work to address expectations its currency will depreciate further, according to the International Monetary Fund’s representative in the country.
The Southeast Asian nation faces an “embedded expectation of a declining trend in the dong,” Benedict Bingham, the IMF’s senior resident representative in Hanoi, said in prepared comments for a presentation. It was delivered at a seminar in Ho Chi Minh City on Sept. 21 organized by a National Assembly committee, and posted on the IMF’s website this week.
Vietnam’s central bank devalued the dong last month for the third time in the past year, citing the need to curb the trade deficit. Further pressure on the currency “would be negative” for financial stability, Fitch Ratings said in July when it lowered the nation’s debt rating.
The “semi-permanent disequilibrium in the foreign-exchange market” has “undermined confidence in the dong” in part because it has “increased transaction costs and uncertainty for Vietnamese businesses, and impaired Vietnam’s standing among international investors,” he said.
In conclusion, Bingham said that
The SBV deserves credit for managing monetary and exchange rate policy under difficult circumstances.
However, weaknesses in monetary and exchange rate policy framework have come with a significant cost.
The new SBV law provides opportunity to create a more flexible formal framework for monetary and exchange rate policy.
Vietnam should not miss this opportunity.
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Source: Monetary and Exchange Rate Policy in Vietnam: Some Challenges, Benedict Bingham, IMF Senior Representative, Presentation for the National Assembly, HoChiMinh City, September 21, 2010