The report just published, the analyst from KBSV said that Vietnam is likely continue among tracking countries currency manipulator in the review period to come, however, likely to be The manipulation label is low.
Which US criteria for a "currency manipulation" country
The thematic report on the risk of being labeled "currency manipulator" by KB Vietnam Securities Company (KBSV) said, in the semi-annual report of the US Department of Finance submitted to this National Assembly, Vietnam. The first is included in the list of countries that monitor the currency watchlist.
Accordingly, of the 9 criteria set by the US Department of Finance, Vietnam has the first three criteria including the total bilateral import and export turnover with the US over 40 billion USD and the trade surplus with the US. $ 20 billion and surplus current account more than 2% of GDP.
Specifically, in 2018, Vietnam became the sixth largest trading partner of the US and the trade surplus officially reached 40 billion USD. Along with that, the cumulative calculation for the four quarters to June 2018 (IMF data referenced by the US), Vietnam’s current account has surplus of more than 5% of GDP.
However, Vietnam has not violated the level of intervention (one-way and long-term) criteria in the foreign exchange market. Specifically, the amount of net USD purchases (from January - December 2018) reached 1.7% of GDP and was below the US 2% threshold. The net buying time of Vietnam was not continuous for 6 months.
In addition, Vietnam also has reasonable grounds to buy USD to increase foreign exchange reserves when Vietnam’s foreign exchange reserves in 2018 are just enough for 2.9 months of imports, below the minimum recommendation of IMF. The US noted this reason but also urged Vietnam to continue reforming monetary policy - recommending Vietnam to gradually raise REER (effective real exchange rate) to reduce the trade deficit with the US.
The ability to be labeled currency manipulator is low
KBSV assessed that Vietnam will continue to be in the group of monitoring currency manipulation countries in the coming reviews, but the possibility of being manipulated is low.
For the trade surplus with the US, Vietnam is unlikely to reduce the level of trade surplus with the US in the short term.
According to KBSV, the trend of shifting supply chains from China to Vietnam along with Vietnamese goods gradually replacing Chinese goods exported to the US makes the trade surplus with the US more likely to continue. increase in the near future.
In addition, according to KBSV observations, the surplus with the US has increased rapidly in recent times, partly from Chinese origin goods coming to Vietnam for export to the US.
Specifically, if looking at the correlation between export groups to the US and industry groups imported from China, KBSV experts found that except for phones and components, many product groups achieved strong growth rates. The US again coincides with the rising commodity groups imported from China such as computers and electronic products, other spare parts, wood and wood products.
Therefore, if Vietnam controls this situation well, Vietnam’s trade deficit with the US in the coming time will increase but the speed may slow down compared to the first half of 2019.
For the intervention of the foreign exchange market, KBSV said that Vietnam will continue to meet this criterion by the volume of net buying (from July 2018 - June 2019) to less than 1% of GDP due to the SBV’s sale. USD in the second half of 2018 to regulate VND has not been devalued too strongly.
With the review in April 2020 (data taken from January - December 2019), if Vietnam’s 2019 GDP estimate is about 270 billion USD, the limit of the SBV is allowed to buy to ensure below 2 % of GDP will fall to about USD 5.4 billion.
Based on official IMF data (as of April 30, 2019) and KBSV’s collection, the SBV is currently buying beyond this threshold, reaching about $ 8.5 billion since the beginning of the year. In the face of unpredictable movements in the international market, the proactive accumulation of foreign exchange is reasonable, helping the SBV to proactively regulate the exchange rate in bad cases.
With the VND being able to face a strong depreciation risk in the second half of the year (due to the devaluation of the yuan), we believe that the SBV will choose the right time to sell foreign currency and stabilize the exchange rate. below the 3% target at the beginning of the year as well as helping Vietnam avoid violating the net buying rule of less than 2% of the US.
In addition, even in the case of not selling foreign exchange reserves, Vietnam still has one last step of a net buying period of no more than 6 months.