Experts have urged the State Bank of Vietnam to reconsider the current policy on foreign currency reserve, which considers the greenback the main foreign currency.

Foreign central banks sold $32bil just in the last two weeks of August 2007, while China is trying to gradually withdraw from the US Government bond market. The moves by the central banks and governments should be acknowlegded by the State Bank of Vietnam.

The proportion of the dollar in foreign banks’ reserves now accounts for 65.7%, a sharp fall from the previous level of 71% since the euro appeared. In 2001, the greenback had the highest value compared to the euro, when one euro could be converted to $0.89.

In 2006, the euro was equal to $1.25. However, in October 2007, the greenback devaluated dramatically by 13% over the previous year, when one euro was equivalent to $1.415. This means that in the world, people “boycott” the dollar to use other currencies.

There are many reasons behind the dollar devaluation. First, the US economy consumes more than its capability. Second, the real estate market is not as strong as people think, and house prices will not increase for ever, which means that foreign indirect investment in bonds of this kind will not bring profit.

Third, the US economy is not in as good health as people previously thought, and it may enter the recession. If countries in the world are really on the way to reduce the percentage of the dollar in their reserves in order to diversify their foreign currency reserves, the dollar will devaluate further.

While foreign banks rushed to sell out $32bil in the last two weeks of August, and the US Federal Reserve had to cut the core interest rate by 0.5%, the State Bank of Vietnam remains unruffled.

Experts have pointed out that the foreign currency reserves should be diversified, and that the central bank should think of converting parts of the dollar volume into other foreign currencies, which may revaluate in the future, including the Chinese yuan.

The surveys conducted recently all showed that Vietnamese enterprises prefer the greenback to other hard foreign currencies when trading with other partners. The Central Institute for Economic Management (CIEM) wrote in its recent survey that the dollar, not the euro, is mainly being used by Vietnamese enterprises in payment when exporting to the EU. Only 30% of Vietnamese enterprises use the euro in trade deals with the EU, while the other 70% use the greenback.

Source: Lao dong