Vietnam’s foreign exchange market in 2014 Interbank rates was increased 1% by SBV.. This adjustment reflects the pressure to increase the VND / USD exchange rate, the demand for foreign
Trang 1NATIONAL ECONOMICS UNIVERSITY
ADVANCED EDUCATIONAL PROGRAMS
International Finance
Topic : Current situation of foreign exchange marke in Vietnam and management measures
GROUP 5:
1 Ha Tu Linh
2 Dang Thi Khanh An
3 Nguyen Thi Thu Ha
4 Tran Thi Thu Hang
5 Bui Viet Anh
Trang 2TABLE OF CONTENT
CHAPTER 1: Current situation of foreign exchange market in
Vietnam
1 Vietnam’s foreign exchange market in 2014
2 Vietnam’s foreign exchange market in 2015
3 Vietnam’s foreign exchange market in 2016
CHAPTER 2 : Vietnam’s management measures in cotrolling
foregin exchange market
Trang 3CHAPTER 1: Current situation of foreign exchange market in Vietnam
1.
Vietnam’s foreign exchange market in 2014
Interbank rates was increased 1% by SBV.
In the first 6 months of 2014, the average interbank rate between VND and USD was kept stable at 20,036 VND / USD until 19/06/2014, Government Bank
increased it 1% to 21.246 VND/USD Accordingly, the new ceiling rate is 21,458 VND / USD and the new rate floor is 21,034 VND / USD This adjustment reflects the pressure to increase the VND / USD exchange rate, the demand for foreign currencies to increase but still in the market's responsiveness as well as the control
of government bank
The adjustment of the interbank rate this time is to support exports in the second half of the year By that, support economic growth when the absorption capacity of the market is poor while the export situation is showing signs of optimism For many businesses in the export sector, especially exporters to the US and Europe, this exchange adjustment will open up new opportunities
Adjusting the exchange rate to support exports is also a positive impact, which creates opportunities for enterprises to expand their export partners, reduces their dependence on foreign partners
In addition, the exchange rate adjustment will not pose significant risks to
inflation Because in that time, domestic demands are still weak, Increase the exchange rate led to higher input prices, but companies could not easily raise output prices In addition, with the current supply and demand situation of the foreign exchange market, the SBV ( State Bank of Vietnam) will be able to
maintain the stability of the VND in the long run
For the stock market, this adjustment of the exchange rate has the same reaction as the adjustment of the interbank exchange rate in 2013 The stock market is
negatively impacted in the short term but then rebounded rapidly On 27/6/2013, the SBV increased the average interbank exchange rate 1%, one day later the VN Index fell 3.7 points, but quickly recovered and increased
Trang 4In conclusion:
The foreign exchange market is stable in 2014 when the average exchange rate of
23 commercial banks was 21.251 VND / USD, increased 1.04% over the same period in 2013 Free exchange rates on June 30, 2014 is 21.305 VND / USD, increased 0.1% over the same period in 2013
Although the nominal exchange rate has been adjusted by 1%, however, due to the inflation gap between the US and Vietnam, the VND is still 6.48% higher than the
US dollar
The foreign exchange market is basically stable, due to the support of the
following factors:
- Stable exchange rate police
The SBV has maintained the interbank exchange rate at VND21,036 / USD for nearly a year (from June 28, 2013 to June 18, 2014)
- Trade balance continues to increase:
According to statistics of the General Department of Customs, the trade
balance of commodities of the country (calculated until June 15, 2014) is
surplus more than 1.45 billion USD Specifically, the total import-export of
the country reached more than 127.63 billion US dollars, increased 12.9% (which means increased more than 14.57 billion US dollars) over the same
period in 2013 Export turnover of the country reached more than US $
64.54 billion, increased 15.4% ( which means increased more than 8.61
billion USD) over the same period in 2013 Import turnover of goods
reached over $ 63.09 billion, increased 10.4% ( which means increased more than 5.96 billion USD) over the same period in 2013
- Other capital flows such as FDI, ODA, remittances are relatively stable
According to statistics of the Foreign Investment Agency, in 2014, Foreign
direct investment projects are estimated to have disbursed $ 5.75 billion
USD, increased 0.9% over the same period in 2013 ODA in Vietnam is also
stable In the year 2014 (starting from 1/4/2014 to the end of March 2015), Japan promised to maintain stable ODA for Vietnam at least equal 2013 (about $ 3.5 billion) The European Union (EU) pledged to continue
financing € 542 million for Vietnam in 2014 Remittances are also a stable
Trang 5source of foreign exchange and tend to increase each year In 2013, the amount of remittances transferred to Vietnam reached 11 billion USD, is expected to increase by 20% in 2014
- High foreign exchange reserves
In 2014, the SBV has bought over 10 billion USD, increased the exchange reserves to over 35 billion USD- the highest level so far
2.
Vietnam’s foreign exchange market in 2015
Overall, the foreign exchange market of Vietnam was quite exciting and complicated in 2015 It can be seen thatthe foreign exchange market for the first half of the year had been supported in a stable manner by long-term
factors including:
Consistent direction of the SBV
The overall balance of payments surplus - estimated to reach $ 2-3 billion in the first 6 months of the year
Inflation remained low, CPI in June rose by only 0.6% against the end of 2014
However, from the beginning of the year, the pressure from the international currency market and the serious trade deficit forced the SBV to increase the average interbank exchange rate by 1%.After that market sentiment stabilized and exchange rates fell shortly, but this situation did not last long.Continued to
be influenced by the strength of the dollar, the exchange rate went to the
ceiling in several days before the SBV raised the second rate to 1% in May and implement the commitment to adjust no more than 2% to the exchange rate as well as ready to intervene to stabilize the market The market liquidity was stable until August, then the market was shaken again by the Chinese central bank's CNY devaluation in response to the growing interest rate of Fed In order to facilitate export activities and stabilize market sentiment, the SBV has adjusted flexibly to increase the exchange rate by 1% and adjusted the trading exchange rate by 2% Besides, combined with the method of selling foreign currency to the market to serve the needs of payment of customers,the SBV had easedthe market sentiment to push speculation The exchange rate
Trang 6stabilized around the SBV’s selling amout of 22,475VND / USD until mid-November Then the exchange rate showed an upward trend due to the demand for dollars at the end of the year for import activities and the uncertain market sentiment was influenced by the decision to increase the basic interest rate of the Fed.In that situation, the State Bank of Vietnam pledged to sell USD term
in order to support and stabilize the market sentiment, the exchange rate thus dropped sharply from the ceiling level of the SBV's selling price of 22,475 USD / VND The trading exchange rates was around this level until the end of the year
At 31/12/2015, the listed exchange rate for buying and selling VND / USD of commercial banks were popular around 22,460 - 22,530 VND / USD (buy / sell)
In the interbank market, the exchange rate at the end of December 31 was 22,485 - 22,495 VND / USD
The exchange rate in the unofficial market traded at 22,630 - 22,660 VND / USD (buy-sell)
The SBV's policy remained unchanged during the week: the average
interbank exchange rate was 21,890 VND / USD from 19/08/2015; The
ceiling price was 21,233 - 22,547 VND / USD, respectively The listed
exchange rate at SBV was 21,800 - 22,475 VND / USD on 19/08/2015
3.
Vietnam’s foreign exchange market in 2015
After experiencing fluctuations in 2015, causing the state to sell a
considerable amount of foreign currency to intervene in the market, in early
2016, the foreign exchange market of Vietnam is quite stable
On February 2, 1616, the State Bank reverted to the dollar with the purchase price of 22,300 VND and the ceiling price of 22,511 VND This move
shows that banks have started buying foreign currencies to reserve After the announcement of the above information, market liquidity became plentiful, market activity became more active
Trang 7The central bank's daily central rate announcement has contributed to
speculative sentiment among investors At the same time, this also helps to prevent the ongoing dollarization in the Vietnamese economy
At the end of May this year, the exchange rates in many commercial banks have shown signs of warming due to the rumors of a possible Fed rate
increase in June 2016 and impact From the deceleration of the Chinese economy, the yuan has declined significantly In addition, in the Vietnamese market, the purchase of $ 7 billion in reserves by the State Bank also
contributes to the rise of the dollar
The interbank interest rates in May 2016 were mixed with the previous month, tending to fall further and stay low for several consecutive weeks due
to the following reasons: Faster than the VND credit, the SBV pumped more than 72 trillion VND via foreign exchange channels
However, in June, the exchange rate returned to a stable situation as the bank temporarily stopped pumping money into the market, trade balance was positive and the US Federal Reserve Delayed raising interest rates
•Exchange rate of USDVND
Trang 8
The situation on the foreign exchange market in the first quarter was quite stable The market liquidity was good, the exchange rate gradually declined
in the quarter and revolved around the SBV buying, supported the State Bank of Vietnam to buy a large amount of USD in foreign exchange
reserves To get this result: (i) the new exchange rate mechanism was
effectively implemented by the SBV from the beginning of the year The use
of central rates to bring the reference exchange rate to reflect the true supply and demand situation in the market has at the same time repelled speculation and dollarization in the market; (Ii) The surplus trade balance in the first quarter, the abundant foreign currency volume from FDI projects flowing into the market, the low demand for foreign currencies of enterprises in this period also created favorable conditions To reduce exchange rates and stability; (Iii) The FED exercise caution to raise interest rates and the yuan in Q1 / 2016 does not fluctuate significantly to reduce forex pressure At the end of the first quarter, the exchange rate was stable at 22,290 - 22,300 VND / USD
+ At the end of the month, VND / USD exchange rates of commercial banks were commonly quoted around 22,260 - 22,320 VND / USD (buy / sell) + The exchange rate in the unofficial market fluctuates with the exchange rate fluctuations on the official market The exchange rate in the unofficial market decreased and stabilized around 22.28022.320 VND / USD (buy-sell)
+ SB's operating policies: The central bank adjusted flexibly to increase / decrease the central rate by day, and as of 31/03/2016 the central rate was adjusted down 33 points compared with the beginning of the month at
21,850 VND /USD
• Other foreign currency
In the first quarter of 2016, the dollar fluctuated in a narrow range in
February and fluctuated sharply in March The reason is because the dollar devalued before the decision to delay the Fed interest rate increase while the loosening policy The ECB's currency does not cause the euro to fall Euros
in the quarter increased 4.6% against the dollar and closed at 1.1377 EUR / USD - The dollar rose slightly at the beginning of the quarter versus the
Trang 9Japanese Yen while it fell sharply at the end of the quarter The weakness of the US economy and the prospect of a damp world economy prompted investors to invest in the Japanese Yen as a hedge Japanese yen in the
quarter rose 6.7% against the dollar and closed at 112,549 JPY / USD
Looking back at the foreign exchange market over the past time, after a long period of relatively stable and less volatile, since mid-August, the central rate has been continuously adjusted up to October 26, Listed at 22,030 VND / USD, an increase of about 0.6% compared to the beginning of the year However, the exchange rates of commercial banks and the informal market continue to maintain and maintain stability The rate at many commercial banks is currently around 22,330 - 22,350 VND / USD
In particular, the CDS index tends to fall slightly and NDF term rates have not changed much compared to the previous month, suggesting that the exchange rate expectations are quite stable The change in CDs is due to:
• Some of the major currencies in the basket depreciate against the dollar, particularly the CNY and GBP
• Foreign currency demand pick-up may increase again by seasonal factor to meet year-end payment demand and FED's ability to raise interest rates in December In particular, demand for foreign currency has shown signs hotter:
(i) Imports of finished goods have stopped their downward trend and started
to increase again since September;
(ii) Foreign currency credit is increasing significantly As of 30/9/2016, foreign currency credit has increased 5.44% over the end of 2015, up 3.69 percentage points over the previous month
CONCLUSION:
After 15 years of operating, the exchange market of VN still under
developed, even when compare with countries in same area
The fact has shown that low quality of management, lack of unification, regulation still poor and don’t have the connection The same with invest
Trang 10operation from foreign country to VN, VN don’t have the base of
enforcement for purpose of management It cannot be denied that, indirect investor try to dishonor the regulation by buying bonds, treasury bills which issued from foreign countries or central bank us source of exchange reserve
to invest
According to financial expert, the lack of unification and disadvantages has created the great amount of pressure for VN on the way of integration Firstly, the foreign exchange is top priority in joining international
cooperation organization to serve the process of integration
It’s time for VN to built another course of enforcement to guarantee safety through authorized units, using transfer or asset blocked of a person or organization related to terrorism, illegal money
The market does not really open, allow non-bank institution to join foreign exchange market, diversity in goods, services of foreign exchange ,…
According to Mr Le Duc Thuy, state bank governor, with development of the economy in the past few years, transactions in foreign exchange continue
to diverse itself, both scale and depth
Mean while, the foreign exchange management in VN still considered to be inadequate For the current transaction, VN has removed regulation in
transforming foreign exchange and payment but still regulation in files and documents which are really complicated Modern transaction such as
internet banking, card payment, don’t have any regulation, also guide of how
to use these product
Inconvenience also shown in funding transaction, documents for this
problem is decree no 63/NĐ – CP from the government have been
established for 7 years The contents are not in details
After being accepted to follow the term VIII by IMF Regulation about freedom in current transaction will be important condition for VN in joining WTO
On the other hand, need flexible regulation about foreign exchange market with subject participate in the market and market’s tools
Funding transaction should be emphasized in management through cash flow in and out of foreign account open by bank