The US is unlikely to name Vietnam as currency manipulator, as it is widely seen as a politically motivated move, banking expert Nguyen Tri Hieu told Hanoitimes.
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Hieu pointed to the fact that the US has recently removed the currency manipulator tag off China right before the two countries signed Phase One of the trade deal.
“Given the fact that the US – Vietnam diplomatic relations are growing strongly and Vietnam is willing to address the US's concern related to trade issues, the chance for this to happen is nearly zero,” Hieu said.
On January 14, the US Department of Treasury released a report titled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the US”, in which it included Vietnam in the monitoring list of major trading partners “that merit close attention to their currency practices and macroeconomic policies.”
In addition to Vietnam, the list comprises China, Japan, South Korea, Germany, Italy, Ireland, Singapore, Malaysia and Switzerland.
According to the US agency, an economy that meets two of the three criteria in the Trade Facilitation and Trade enforcement Act of 2015, or the 2015 Act, is included into the monitoring list.
The three criteria include (1) a significant bilateral trade surplus with the United States is one that is at least US$20 billion over a 12-month period; (2) a material current account surplus is one that is at least 2% of gross domestic product (GDP) over a 12-month period; and (3) persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly, in at least six out of 12 months, and these net purchases total at least 2% of an economy’s GDP over a 12-month period.
According to the US evaluation, Vietnam only violated the first criterion of having more than US$20 billion in trade surplus with the US in 2019. Meanwhile, Vietnam’s current account surplus was only 1.7% of GDP while net foreign currency reached 0.8% GDP (under the 2% criteria). Besides, the US Department of Treasury believed that Vietnam’s purchase of foreign currency is reasonable in order to raise the fairly low foreign exchange reserves. The State Bank of Vietnam (SBV), the country’s central bank, also sold USD to counteract VND devaluation in the second half of 2018.
Economist Can Van Luc, however, said Vietnam’s inclusion in the list should be taken as a warning sign.
Luc said the US report was based on the four-quarter data up to June 2019. However, it should be noted that the SBV had only bought in a large amount of foreign currency of around US$10 billion in the remaining six months of 2019, exceeding the 2%-of-GDP threshold and helping the country to hold a record high of US$79 billion in foreign exchange reserves by the end of 2019.
“Without a balanced intervention of foreign exchange, including both buying and selling, there would be more risks for Vietnam in the next review by the US side,” stressed Luc.
Vietnam watch out in the next six months to change the position and reduce the risk of being labeled as currency manipulator by the US, said Luc.
A report by the BIDV Training and Research Institute, headed by Luc, last year proposed four recommendations for Vietnam to prevent the risk.
Firstly, Vietnam should ensure greater transparency in data related to foreign exchange, as as well as any move to intervene in the market and trade balance.
Secondly, it is important for Vietnam to continue curbing its trade surplus with the US, while the authority must limit direct and one-way intervention into the foreign exchange market.
Thirdly, Vietnam is expected to address concern from the US in trade balance, and boost business environment reforms.
Fourthly, improving coordination among government agencies in drafting and carrying out policies, particularly in prevention of any delay in fulfilling the country’s financial obligation to foreign creditors.
