The interbank VND/USD exchange rate as well as the trading band has been adjusted to better reflect the market\'s demand and supply.
This came from a recent interview by DTiNews with Nguyen Quang Huy, Head of the State Bank of Vietnam (SBV)’s Foreign Exchange Department.
Narrowing the trading band is essential in limiting the day to day changes in the VND/USD exchange rate
Why did the SBV devaluate the dong to 20,693 dong per dollar?
On January 9, 2011, the Government issued Resolution No. 02/NQ-CP on major solutions for the implementation of socio-economic plans in the year, which requires the SBV to efficiently control the forex market and exchange rates to increase the market liquidity and forex reserves, and especially to curb trade deficit.
The bank’s move is in line with the aforementioned resolution and aimed at a more flexible monetary policy.
Why is the trading band narrowed while the SBV desires a more flexible exchange rate regime?
The adjustment of the trading band and the interbank exchange rate will allow the exchange rates offered by financial institutions to better reflect the market\'s demand and supply. In the near future, the interbank exchange rate will closely follow the fluctuations on the forex market.
Therefore, narrowing the trading band is essential in limiting the day to day changes in the VND/USD exchange rate, in addition to helping risk management of businesses and credit organisations, while serving the government\'s target of having a more flexible monetary policy.
How will the SBV regulate the exchange rate?
The SBV will flexibily regulate the exchange rate to make sure it is more in line with the market’s foreign currency supply and demand. This will help to decrease trade deficit. The bank will also carry out necessary measures to develop a foreign exchange market. For example, the use of risk-prevention tools by international standard will be allowed to help banks and enterprises to increase the efficiency of their business plan and risk management.
The SBV has asked credit organisations to focus on their plans for risk management in order to ensure sufficient liquidity in the market.
