Topic: Exchange rate USD/VNĐ from 2009 to 2010 and influential
causes.
The presentation of International
Payment
What is the exchange rate?
•
The exchange rate is the rate at which one currency may be converted into another. The
exchange rate is also the value of one currency in comparison with another currencies.
•
Eg $ 1 = ¥ 115.19, which prices are expressed in U.S. dollars and $ 1 price was JPY ¥
115.19.
•
The exchange rate also means the price of one unit of foreign currency per domestic
currency.
The exchange rate includes:

Nominal exchange rate is the price of one unit of foreign currency per domestic currency
and not to mention the purchasing power of money.

Real exchange rate is the nominal exchange rate was adjusted according to relative prices
between countries.

Effective exchange rate is weighted average of a basket of foreign currencies.

Equilibrium Real Exchange Rate is the exchange rate at which the demand for a currency
and supply of the same currency are equal. The equilibrium exchange rate indicates that the
price of exchanging two currencies will remain stable.
The main factors which affect the exchange rate:

Demand and supply for foreign currency


Interest rate difference between two countries.

Inflation rate difference among countries.

Balance of payments. Besides, Crowd psychology, government policies, credibility of the
currency, etc … also affect the exchange rate.
Exchange rate situation in Vietnam in 2009

In 2009 years could be considered "currency year" in Vietnam.

In fact, this was happened since the beginning of the foreign exchange
market that shows it always stress.
E
xchange
r
ate
m
ovements

Stage1: Exchange rate fluctuated between 17.450 dong and 17.700 dong , with the ceiling
price ranges from 0 to 200 points (a point equivalent to a dong).
I. The interbank market
January 2009
•
From 2
sd
to 13
th
Jan 09: Demand for buying dollars to settle debt payments and imports remain relatively high
increase of USD.

•
Since 13
th
Jan 2009: most import turnover for production and domestic consumption fell in Jan 2009 (due to the
impact of world financial crisis). As a result, demand for USD fell slightly and caused exchange rate not continues to
rise but stopped.
February 2009
•
Export turnover in the first 10 days in Feb 2009 had moved up in comparison with Jan 2009.
•
Government focus on all efforts to prevent economic decline. In February, the Government has implemented a $ 1 billion stimulus
package (17,000 billion) to support interest rate loans to businesses (through the reduction of 4% interest rate on bank loans to
businesses). Therefore, Increasing the demand of USD explain why USD / VND rose sharply.
•
Registered FDI capital increased 27 times in Feb 2009 more than in Jan 2009. Increasing the supply of dollars makes the USD
exchange rate fluctuate.
March 2009
Exchange rate remain stable from 2
sd
to 23
th
March 2009 is caused:
•
The policy of tax reduction, tax extension, interest rate support actively deployed in March 2009.
•
The CPI group relief in March 2009: prices of food and catering services decreased 0.46% (food 1.27% 1.55% food reduction; eating
out families increased 0.29%) means of transport and communication reduced 0.55%, culture groups, sports, entertainment by 0.12
%, USD exchange rate is therefore relatively stable.
March 2009
Exchange rate rose sharply during the last week in March 2009:

•
Until 24.03/2009, Government of State Bank has signed on 23/3/2009 622/QD-NHNN about deciding on adjusting exchange rate USD / VND to + /
-5 % instead of + / -3% current. Increasing demand for USD is the cause of rising sharply the USD exchange rate after it was stable for a long time.
•
After March 24
th
, many enterprises believe that the new amplitude will keep the exchange rate be stable for some time, so do not rush to buy.
Meanwhile, the sellers also have stopped hoarding goods due to new regulations on rates, they can not sell dollars above the prescribed ceiling rates.
Accordingly, the USD exchange rate cooled down by the rest of March 2009.
Exchange rate movements

Stage 2 : Inter-bank exchange rate close to the ceiling price of the State Bank in about 10 days
after the State Bank exchange rate increased (from +/- 3% to +/- 5% until March 23,
2009). But til April 9, Interbank rates increase and maintain range from 200 to 600 points
over the ceiling price.
I. The interbank market
Apr
il
Ma
y
Jun
e

The positive curb inflation policy.

Interest rate policy support the effective implementation of Decision No. 497/QD-TTg,
579/QD-TTg.

The stimulating investment and consumption policy: Government directs commercial banks to
reduce interest rates on loans formerly of 10.5% per year at most.


Rising trade deficit: $ 3.6 billion for the quarter 2.

Current investments withdrawal away.
Cause
Exchange rate movements

Stage 3 : by the end of October 2009, increasing the exchange rate, rises 0,11% in comparison with
the first of October 2009 and to November 10 above the ceiling price of 1000 points. Exchange rate
fluctuations is very intense, a day increased from 200 to 300 points and peaking at 19,750 in
November 24
th
. Until the State Bank allowed back in gold, it fell for two days but still higher than
1200-1500 points over the ceiling price.
I. The interbank market
Cause

The enterprises keep dollars holding, many export enterprises suppose that need to “foresight”, so not sell
the foreign currency, or sell limited quantities for commercial banks. Therefore, the lack of needed foreign
currency for regulating the economy happened in banks.

By the first of September, the new USD interest rate was fell during two months ago by the bank that has
trended to rise for keeping the depositors when the invest channels become more attractive.

In mid-September, Exchange rate USD/VND was exciting again, repeatedly set milestones record.
Because the enterprises do not only take advantage of the low interest rate to borrow, but also increase
purchase dollars for import.
Exchange rate movements

Stage 4: the exchange rate declined from a high of 19,800 dong to 18,500 dong, close to the ceiling price.

I. Interbank market

State bank adjust the amplitude reduction to set rates +3% since 11.26.2009.

SB increased the base rate to 8% per year, the refinancing rate to 8% per annum and the rediscount rate to 6% per
annum since 12/2009.

To apply for the interest rates in VND capital below 10.5%.

Sell foreign currency to support the credit institutions.

Combining the concerned departments to inspect the operation control of foreign currency trading.
=> Stimulating demand for domestic currency and rising supply for foreign currency (USD)
Exchange rate movements

Stage 1: they range from 17,450 dong - VND 17,800, higher than the interbank rate of 100 points.


Stage 2, From 18.180 dong to 18.250 dong, but from the second half of June 2009, rose to 18,450 - 18,500
dong.

Stage 3, free-market rates rose rapidly.

Stage 4, free-market rates declined sharply.
II. Free market changes much more intense
Exchange rate movements

Stage 1, it was varried a bit around the price of 16.980 dong.

Stage 2, after loosening amplitude, rates declined from 16,980 dong to 16,935 dong (- 0.26%) and maintained until the end of May

2009. Since June 2009, although the State Bank adjust to rise gradually, but low growth.

Stage 3, Growth rate of the average exchange rate to the interbank was still not much and until November 19, 2009 by 0,3% in
comparison with in the end of 2008.

Stage 4, Since Nov 26
th
, SB’s average exchange rate was adjusted to rise to 5,44%, more than in 2008 the increase was only
5,11%.
III. State bank market changes a little
Along with USD, the other currencies was gained strongly, for example,
the exchange rate between VND with some other currencies was applied
for the import and export tax. Speculators was rolling in dough!
2009
Forecast in 2010

2009 was the year the implementation of the stimulus package, potentially inflationary.Thus, in 2010 the
implementation of policies to control inflation is entirely possible.

The trade deficit will increase in 2010, due to the restructuring economy policy of government in rural areas.

Dollar devaluation on the world market caused the demand for gold increases.

Developed countries focus on economic recovery should be reduced FDI » Reduce the supply of foreign
currency (USD), etc…
Exchange rate fluctuations will still rise, but slow and steady. The tight control of borrowing dollars for
production activities will limit speculation in order to increase the virtual dollar. 2010 will be one year
implementation of monetary policy tightening to ensure stable the development of the economy.