Vietnam’s forex reserve sets new record

At a recent Government meeting, Prime Minister Nguyen Xuan Phuc said the country’s forex reserve was expected to hit US$100 billion by the end of this year, five times higher than the level recorded at the beginning of his term.

Statistics of the General Department of Customs showed that August saw a trade surplus of US$2.5 billion and a surplus of US$10.93 billion in the January-August period, providing a plentiful supply of foreign currencies which enabled the central bank to purchase foreign currencies from the beginning of this year.

Financial expert Nguyen Tri Hieu said that high reserves would be an important buffer to help the economy withstand external shocks, which would contribute to stabilising the macroeconomy, strengthening foreign investors’ confidence.

“A stable forex market will make foreign investors feel secure when investing in Vietnam because they will be less worried about forex risks,” Hieu said, adding that the forex policy was an important macroeconomic factor for foreign investors when considering investing in Vietnam.

According to the central bank, increasing the forex reserve was important so the Government could intervene when necessary, especially in the context of unpredictable global market developments.

Economist Nguyen Duc Thanh said the central bank’s purchase of foreign currencies helped prevent the strengthening of the Vietnamese dong, meaning lower forex rates, which would hurt exports.

Thanh said a stable forex policy was enough at this moment in the context of little dollarisation in the Vietnamese economy.

However, there was a potential risk if Vietnam continued to increase forex reserves that the US might accuse Vietnam of currency manipulation, Thanh said.

“My view is that Vietnam should make the most of diplomatic measures to appease the US, if the risk increases, at the same time, stubbornly continue to increase reserve,” Thanh said, adding that increasing forex reserves was essential.

Thanh estimated that forex reserves should be increased to the equivalent of six months of imports and towards US$150 billion in the next 12-18 months.

The target could be higher if the size of the Vietnamese economy and the scale of imports and exports kept expanding, he said.

Thanh said when the post-pandemic economic recovery took place, the demand for US dollar would increase and the Government might have to use the forex reserves to intervene in the market.