Despite devaluation, holding Vietnamese dong still more beneficial: official

Thien Thanh Sanitaryware joint company

Despite devaluation, holding Vietnamese dong still more beneficial: official

A senior state official has recommended that Vietnamese depositors cling to the local currency, the Vietnamese dong, as keeping it will be more profitable than holding the U.S. dollar in the long term. Truong Van Phuoc, deputy chairman of the National Financial Supervisory Commission (NFSC), told Tuoi Tre (Youth) newspaper in an interview this week that the interest for deposits in the Vietnamese dong will continue to be kept higher than that for dollar deposits despite the dong devaluation.

Vietnam last month devalued the dong for the third time this year and widened the trading band for VND-USD transactions from one percent to three percent, a move the State Bank of Vietnam made to cope with the devaluation of the Chinese yuan.

All this technically caused the Vietnamese dong to lose five percent of its value.

Many people are worried about their assets being depreciated in U.S. dollar terms so buying more dollars is considered a way to contain that risk, Phuoc said.

But doing so will be unprofitable compared to holding the Vietnamese dong in the long run, as for many years the Vietnamese government has adopted the principle of keeping the interest rate of the local currency higher than that of the greenback, factoring in the dong devaluation, to ensure the benefit for dong holders, he said.

In 2011, the dong was devalued against the greenback by a record rate of 9.7 percent, but its deposit interest was at 14-15 percent, still higher than that of the dollar then.

With the dollar interest rate of 0.75 percent, plus an appreciation of about five percent against the Vietnamese dong, the deposit rate of the Vietnamese currency is still marginally higher, at around six percent, Phuoc added.

At the time of the devaluation, people might feel that holding the dollar is more beneficial, as many had suffered from high inflation, which already lowered the dong’ value, for a long time, the deputy chairman said.

Regarding the probability of another yuan devaluation, which may force the State Bank of Vietnam to make a similar move to maintain the competitiveness of Vietnamese exports, Phuoc said such depreciation is unsound.

The Vietnamese dong has been devalued by 42 percent against the greenback since 2010, while the Chinese yuan has risen by 35 percent against the dollar, he said.

With an inflation rate about 60 percent higher than that in China, Vietnam still has more advantages in supporting exportation, so the country does not need to follow the currency devaluation moves of its northern neighbor to boost exports, Phuoc added.

Asked about the possibility of a further devaluation of the dong after a meeting of the U.S. Federal Reserve (FED) which will wrap up early Friday morning (Vietnam time), Phuoc said Vietnam’s central bank has taken it into account in the latest move to adjust the local currency’s value.

The two-day meeting to discuss if the interest rate of the greenback should be hiked is scheduled to finish at 1:00 am (Vietnam time) tomorrow, followed by a press conference chaired by FED chair Janet Yellen 30 minutes later.

The world is nervously awaiting the outcome of this meeting, as if the FED raises the rate, that can lead to the hoarding of the greenback and make the currency more attractive as an investment channel, Phuoc said.

The deputy chairman predicted that this would trigger a big fluctuation in the global financial market and the interest of many other currencies, including the Vietnamese dong.