Business & Investment

Monopoly: Vietnam intervened in currency markets weeks after US blame: Source Reuters

© Reuters.File Photo: Illustration Photo of Vietnamese Dong Note


By Phuong Nguyen and Tom Westbrook

Hanoi / Singapore (Reuters)-Vietnam is again intervening in the forex market after being branded as a “currency manipulator” by the United States in December to prevent the value of Don from rising, and traders It’s a rare way to use what you say, according to six people familiar with this issue and reviews of interbank transaction messages.

The State Bank of Vietnam (SBV) will send US dollars to some regional banks on a regular basis in the spot market in early January, when transactions are settled within a few days, according to two senior currency traders and analysts. Announced that it will stop purchasing. I am directly involved in the transaction at a local bank.

The central bank instead offered attractive deals to local banks: it agrees to buy dollars at a favorable rate for delivery in July, which is 6 local banks if they so desire. A review of the source and transaction instructions sent by SBV for one such transaction that will allow you to cancel this contract by mid-May.

New, previously unreported interventions have put downward pressure on Don, but help avoid getting US attention to further consequences of trade and bilateral relations without immediate exchange. Sources said it was possible.For graphics, click https: //

SBV did not respond to the request for comment.

There is no suggestion of cheating by Vietnam. Many central banks regularly intervene in the currency market. Vietnam has consistently stated its monetary policy aimed at maintaining stability and curbing inflation, rather than seeking a trade advantage.

“There is nothing public to share at this time,” a Treasury official said in an email response to Reuters’ question about Vietnam’s foreign exchange practices.

Vietnam, whose export-led growth is rapidly increasing as a manufacturing industry for electronic devices, has been shifting more and more from China, especially to Southeast Asian countries, after the trade war with Washington.

Higher dong values ​​due to trade surpluses can undermine this growth during a pandemic.

Nguyen Suan Bin, head of research at KB Securities in Hanoi, who is familiar with the transaction but not directly involved, said Vietnam’s central bank is behind the U.S. label due to delayed delivery of dollars. He said he could avoid buying dollars, which is one of the conditions. 6 months for 12 consecutive months.

The Treasury’s semi-annual report to Parliament, which reviews the exchange policies of major trading partners, states in December that Vietnam’s currency management aims to create an “unfair competitive advantage in international trade.” Stated.

Vietnam said it meets all the conditions that trigger the designation of a currency manipulator, including “permanent and one-sided intervention” in the currency market.

The risk to Vietnam is high, as further intervention after the currency manipulator label could trigger a US response, such as new tariffs on the goods. The next US review is scheduled for April.

Impact on the market

SBV surpassed the local bank’s market price of $ 23,125 per dollar in January, according to three sources and written transaction messages sent by the central bank. Its rate is a premium of about 0.5% of the current spot price.

If the dong rises further between January and June, the premium will rise above the bank’s spot price. And if the dong falls below 23,125, you can cancel the deal and sell the dollar on the spot market instead.

Reuters couldn’t determine the magnitude of SBV’s intervention, but three traders said it was big enough to generate demand for dollars in the market and put downward pressure on Don.

According to traders, the value of the currency in the black market, where dong is often traded in the real economy, has fallen 1.1% due to possible depletion of the dollar supply.

Abnormal forward

SBV’s new trading is similar to financial derivatives called futures and binds the parties to exchange currencies at an agreed rate on a future date.

Forward contracts offer central banks several benefits. They do not need cash in advance and can help smooth out sudden shifts in reserves. Indeed, they are popular with other Asian central banks such as India, Taiwan and South Korea.

However, four people familiar with the deal said the SBV contract was not a typical forward contract because it gave the bank the option to cancel the deal without spending a lot of money.

Two of them said SBV had previously offered a similar option around 2015, but have since sold dollar forwards to support Don’s sliding value.

SBV previously preferred to use three-month forward contracts, so all six sources familiar with the deal said that the move to a longer time frame was before the intervention drew US attention and pressure. He said it suggests a desire to buy time.

SBV did not answer questions about that approach.

Monopoly: Vietnam intervened in currency markets weeks after US blame: Source Reuters Monopoly: Vietnam intervened in currency markets weeks after US blame: Source Reuters

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