At the 44th annual meeting of the Asian Development Bank in Hanoi, one of the subjects of discussion was the diversification of currency reserves. According to you, is this a necessary measure?

- Dr. Le Dang Doanh: In general, it’s very necessary with respect to Vietnam and every other country (except for the U.S.). The first reason is that, at present, the global economic situation is full of volatility, so the values of the U.S. dollar, the euro, the yen and the Chinese yuan are all changing. Clearly there is a general trend - the dollar is getting weaker by the day. Since the introduction of the Doi Moi (reform) policy, we have not been depending on the convertible Russian ruble but have instead tied our exchange rate to the U.S. dollar. Our foreign currency reserves are also primarily in U.S. dollar. At the same time, most of our commercial transactions involve the Chinese. We also buy from and sell to Europe and Japan using the dollar. We need to analyze which currencies will hold steady and which ones will increase or decrease in value and then make a wise decision accordingly.

 Many are of the opinion that the yuan could replace the dollar. What is your position?

- The American economy surpassed the British economy in 1928, but it was not until 1944 that the U.S. dollar finally replaced the British pound as the world’s leading currency. The U.S. dollar is weak, and according to the International Monetary Fund’s newest figures based on buying power, the Chinese economy will overtake the American economy in 2016. However, the Chinese yuan will not easily surpass the U.S. dollar in the same year. Although a position of dominance could be attained because of China’s high proportion of exports, the yuan isn’t yet a strong currency owing to the underdeveloped nature of China’s banking system. The creditability of this system is still in question. So China’s overtaking the American economy will not mean the immediate surpassing of the U.S. dollar by the yuan.

I think Vietnam should have a basket of foreign currencies including the U.S. dollar, euro, yen and yuan. Considering the current rise in gold prices, we should also consider a defined amount of gold reserves. In 2010, China was very wise in buying 500 tons of gold from which they’ve received good returns because of the rise in gold prices.

 The government is tending to limit the purchase and sale of gold by individuals. In your opinion, should the State Bank of Vietnam buy this quantity of gold or not?

- It would be great if the State Bank of Vietnam were able to obtain that amount of gold. In doing so, they could store the gold with foreign banks and receive a large sum in foreign currency. If the quantity of gold were 500 tons, then this amount would yield around 22 to 24 billion U.S. dollars. This is a much larger amount of foreign currency compared to the current reserves.

But is it possible that big spending on such a large quantity of gold could cause inflation?

- That’s right. For this reason, there should be a gold market – like a gold exchange floor – allowing people to trade in gold – gold certificates, that is – not necessarily physical gold. Gold certificates could be used to secure mortgages with foreign banks. There is no need to dump a lot of cash on the market. But to do this would require transparency in exchange floor operations and in the import and export of gold. When the Asia Commercial Bank (ACB) established a gold exchange floor, the Vietnam Gold Traders Association eight times put forward the idea of building of a legal framework but their recommendations were never implemented.

Returning to the issue of diversifying foreign reserves, is this a good or bad thing for businesses?

- They should use different currencies, avoiding tying up all their cash to the U.S. dollar. Whenever the U.S. dollar falls against the yen or euro, businesses may run into big trouble.

But buying and selling U.S. dollars has become a habit, and changing a habit is difficult.

- The banks must assist and guide enterprises. I think Japan and the European Union will not protest the practice of buying and selling yen and euro. But caution is necessary with respect to China because Vietnam’s trade deficit with China is very large. Currently, we have to find U.S. dollars from other sources to pay for imports from China. If we use yuan then we will have to borrow more from them. So besides relying on China as a major source of consumer goods imports, Vietnam also depends on China for credit and banking as well. The risk is very high.

Source: Saigon Times.