The VND went crazy

Source: Brokerage China

The Vietnamese dong plummeted!

According to British financial data, this morning, Beijing time, the USD/VND exchange rate reached an all-time high of 25,452. Last month, USD/VND hit a new high of 25,365. This means that the depreciation trend of the Vietnamese dong has increased and hit a new record low. Since the beginning of this year, the Vietnamese dong has depreciated by about 3%, but it has depreciated by nearly 10% compared to last year. Vietnam's central bank recently said it is trying to prop up foreign exchange reserves by buying more dollars after being forced to sell a large amount of US dollars to support the Vietnamese dong at the beginning of the year.

So, what's really going on? Will it threaten Vietnam's economy? A few years ago, due to the Federal Reserve's sharp release, a large amount of US dollars flowed to Vietnam, which promoted the rapid development of Vietnam's economy, and the GDP growth rate once reached the first place in the world. However, according to Vietnamese media reports, with the US interest rate hike, the total investment of international capital in Vietnam has decreased by nearly 30% since 2023, and more than 100 billion VND funds have been withdrawn from the country.

However, it is interesting to note that under the combined effect of factors such as the improvement of global supply chain and investment capital liquidity, and the economic recovery of neighboring countries, Vietnam's GDP recovered strongly in the first quarter, with a year-on-year increase of 5.66%, which is significantly higher than the level of the same period in the previous four years.

The Vietnamese dong fell crazy This morning, the USD/VND exchange rate reached an all-time high of 25,452. According to the Central Bank of Vietnam's (SBV) reference exchange rate yesterday, the USD/Vietnamese dong (USDVND) exchange rate reached a new high of 24,245 today, which means that the Vietnamese currency has hit a record low.

In fact, the Vietnamese dong has already fallen sharply last month, when the USD/VND reached an all-time high of 25,365. In order to stabilize the exchange rate, the State Bank of Vietnam sold $110 million on April 22 and another hundreds of millions on April 23, bringing the sale of dollars on April 2 to around 220 million, and claimed that expanding the supply of dollars would be a key factor in helping to stabilize the exchange rate at this stage. In addition, officials of the State Bank of Vietnam advised the public to be cautious in buying and selling foreign currency at credit institutions and not to buy and sell foreign currency at will, otherwise they may violate the law. It also requires local governments in Vietnam to disseminate information about foreign exchange regulations and foreign currency transactions to the people. Deputy Governor of the Ho Chi Minh City Branch of the State Bank of Vietnam, Nguyen Duc Lenh, said that foreign exchange agencies are only allowed to use VND to buy foreign currency from individuals, and are not allowed to sell foreign currency cash to individuals in exchange for VND. However, the sale of cash in foreign currency to individuals holding foreign passports is permitted in accordance with regulations. Individuals holding passports carrying cash in foreign currency or cash in excess of the prescribed amount of VND out of the country or entering the international border ports of Vietnam must declare to the customs at the border ports. Within the limits of existing foreign exchange capacity, credit institutions are responsible for meeting people's foreign exchange needs for payment transactions based on the actual and reasonable needs of each transaction.

What happened?

In fact, the recent trend of the US dollar has ceased to be strong. From Vietnam's economic data, Vietnam's gross domestic product (GDP) is expected to increase by 5.66% year-on-year in the first quarter, higher than the growth level in the first quarter of 2020-2023. As a typical export-oriented economy, weak global demand has a significant impact on Vietnam's exports. In the first quarter of 2024, the continued recovery in demand from Vietnam's major trading partners such as the United States, South Korea, and Japan drove exports up 17% year-on-year to US$93.1 billion, imports up 14% to US$85 billion, and a trade surplus of US$8.1 billion. So, what exactly caused Vietnam's exchange rate to plummet? Analysts believe that the reason may come from two aspects: first, Saigon Bank; The second is the needs of the United States. Earlier, Vietnam's central bank bailed out Saigon Commercial Bank (SCB), which was caught in the country's largest financial fraud. As of April 2, Vietnam's central bank had injected $23.72 billion in "special loans" into the SCB, but Vietnam's foreign exchange reserves were about $100 billion at the end of last year. The total amount of funds provided by the central bank to SCB is equivalent to 5.6% of Vietnam's annual GDP and a quarter of its foreign exchange reserves. The cost is obviously enormous. In addition, the United States is Vietnam's largest exporter of goods, accounting for more than 28% of Vietnam's total exports to the United States in 2023. The U.S. inventory cycle peaked in the second half of 2022, and the U.S. entered a near-one-year destocking phase amid high interest rates and low economic growth expectations. The impact of U.S. destocking on Vietnam is significant, and Vietnam's export growth rate hit the lowest in more than 10 years (-22.4%) after a wave of order cuts. But the inflection point in the inventory cycle may have already appeared, at which point the most important thing the US wants to do is cut interest rates, but inflation has not come down. Therefore, they need Vietnamese bargains even more, and the depreciation of the Vietnamese dong makes goods cheaper. Moreover, with the recovery of Vietnam's exports, it can also lead to the establishment of a new industrial chain. However, excessive depreciation of the local currency is actually a process of harvesting, and it is not a good thing after all.

There is one more variable

In fact, at the time of the depreciation of the Vietnamese dong, there is another major event about Vietnam. Recently, the U.S. Department of Commerce held a hearing on whether to designate Vietnam as a "market economy". This is part of the review that the US side is scheduled to complete at the end of July. O'Sius, former U.S. ambassador to Vietnam and chairman of the U.S.-ASEAN Business Council, who supports giving Vietnam market economy status, said on the 8th, "Vietnam is already a market economy. Key criteria such as currency convertibility have been met and are ready to be accurately determined. He added, "U.S. companies recognize Vietnam's growth potential and are already investing heavily in Vietnam." There are reports that the idea of elevating Vietnam to a market economy is opposed by U.S. steelmakers, Gulf Coast shrimp fishermen and U.S. beekeepers, but is supported by retailers and some other business groups. Currently, Vietnam is considered a "non-market economy country heavily influenced by the government" by the United States, and the United States imposes punitive anti-dumping duties on imports from Vietnam, and upgrading Vietnam to a "market economy" will reduce these tariffs. This year, the U.S. International Trade Commission extended the anti-dumping duty of 25.76 percent on frozen farmed shrimp in Vietnam, but only 5.34 percent on shrimp in Thailand, a market economy country. The Vietnamese side said that the label of non-market economy should be removed due to recent economic reforms, and said that retaining the title would not be conducive to the growing Vietnam-US relationship.

Editor-in-charge: Ye Shuyun

Proofreading: Wang Chaoquan

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