Vietnam’s currency management: theory, practice and reality

Abstract

PurposeThe purpose of this paper is to explain why Vietnam has been charged as a currency manipulator by the USA, and why those charges are less than conclusive, as of May 2021, no immediate tariffs were imposed.Design/methodology/approachA comparative approach is applied using economic data on trade balances, inflation, exchange rates, and foreign exchange reserves from Vietnam, other Asian nations, and the USA. Currency regime theories are briefly reviewed, and USA. Treasury statements about Vietnam’s currency are referred to, which then are analyzed. Further explanations are based on the context of the economic situation and bilateral relations.FindingsSince 2010, Vietnam’s currency has appreciated, and since 2015, the government has kept the Vietnamese dong (VND) stable in real terms against the dollar. The sharp improvement in Vietnam’s bilateral and overall trade balance is due largely to rising labor costs in China and trade frictions between the USA and China. The resulting US tariffs on China’s exports redirected Foreign Direct Investment (FDI) exports to Vietnam. Even with these recent trade surpluses, Vietnam’s ratio of foreign exchange reserves to imports is lower than that of many other Asian nations. The USA’s recent decision not to impose punitive tariffs on Vietnam’s exports but continue to monitor and hold discussions reflects the reduced priority the new US administration puts on bilateral trade balances and the recognition that Vietnam is negotiating seriously and has significant value in a regional context.Originality/valueThe paper provides a comprehensive understanding from both theoretical and practical perspectives of the recent event. The implications are meaningful for the adjustment of national monetary strategy to avoid a similar situation in the future.