Vietnam Adopts Market-Based Rate

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ASEAN Economic Community (AEC)

January 22, 2016.

The Vietnamese dong’s reference rate was reduced by the country’s State Bank for the first time since August 2015, with the goal of using a more market-based strategy for setting the daily reference rate versus the dollar. Dong fixing was devalued by the bank three times in 2015.

It was lowered by .03 percent on January 3rd in a move that is said to make it easier for businesses and investors, create more flexibility with changing global markets, and help dissipate pressure on the dong.

Vietnam’s support of this new exchange rate has cost a lot, as its foreign-currency reserves have fallen by $6.7 billion to $31 billion in the third quarter.

Vietnam’s new strategy will use the prices of eight major foreign currencies and the weighted average of dong prices in the interbank market the previous day to calculate its daily reference rate. These eight currencies are from South Korea, Japan, Thailand, Singapore, Taiwan, China, the European Union, and the U.S.

Vietnam’s new rate will also reflect both domestic and international money market changes and is willing to sell dollars with the goal of stabilizing the money market.

The current exchange rate is 22,122 VND to 1 USD. 1 year chart for the exchange rate is below:

VND-per-1-USD

 

Soledad Investment Management is based in San Diego, California.

 

 

 

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