US won’t label Việt Nam a currency manipulator

The US is refraining from labelling Việt Nam a currency manipulator based on new data the country had provided to the Treasury Department, Bloomberg reported late last week, citing a person familiar with the matter.

Earlier, it was reported that Việt Nam had been at risk of the designation amid plans by President Donald Trump’s administration to lower the threshold for labelling potential manipulators.

The latest news came after in recent weeks, Việt Nam provided additional data aimed at showing the US Treasury it wasn’t holding down the value of the Vietnamese đồng.

Vietnamese Deputy Prime Minister and Minister of Foreign Affairs Phạm Bình Minh visited Washington on May 22-23, where he met with a number of US officials, including Treasury Secretary Steven Mnuchin last Thursday.

According to a statement by the Vietnamese Ministry of Foreign Affairs, at the meeting with Minh, Mnuchin said trade and investment was one of the key pillars in their bilateral relations, and hailed Việt Nam for sharing more information and tackling pressing economic and financial issues.

The US Treasury issues a report twice annually on foreign currencies. In the latest report, the number of countries under scrutiny for possible manipulation rose to about 20 from 12 after the Treasury altered one of the three criteria it uses to look for manipulation.

Previously, one of Treasury’s triggers to examine currency manipulation was a current account surplus - the difference between the amount a country exports and imports - of 3 per cent of gross domestic product. For the current report, it lowered the threshold to 2 per cent.

Besides the current account surplus criteria, the others are a bilateral goods trade surplus with the US of at least US$20 billion; and intervention in the foreign-exchange market that exceeds at least 2 per cent of GDP.

Experts believed that it would be unfair to label Việt Nam a currency manipulator as the country has never deliberately devalued its currency to gain a competitive export edge.

According to Professor Trần Ngọc Thơ from the Hồ Chí Minh City University of Economics, at this time in 2018, Việt Nam's foreign exchange reserves were $63.5 billion. After the State Bank of Việt Nam (SBV) sold foreign currency to intervene in the market, the amount fell to only $59 billion. From the beginning of 2019 until now, the SBV had bought a net amount of $5 billion. Thus, after a year, the reserve had remained unchanged, standing at approximately $63 billion.

This data showed that the SBV's forex market interventions were quite balanced, Thơ explained, adding that the move aimed only to ease exchange rate instability in the local market, rather than create an advantage for exports.

Even as an export-oriented economy, Việt Nam’s primary goal is to keep the đồng stable. The đồng is among the steadiest currencies in ASEAN, having gone up by 0.21 per cent in 2017 and down by only 2.14 per cent in 2018, while other currencies went through extreme volatility.

Reports from the International Monetary Fund on REFR (real effective exchange rate - a measure of the value of a currency against a weighted average of several foreign currencies) released in July last year also showed that compared to a basket of strong foreign currencies and the dollar, the đồng was still overvalued, not devaluing to support exports, Thơ said.

According to the expert, devaluations of the đồng had more negative impacts to Việt Nam than positive outcomes for local stock markets, exchange rates and investment flow.

Source: Vietnam News