ECONOMYNEXT – The Office of the US Trade Representative issued a formal determination saying it will not take action against Vietnam after falsely branding the country a ‘currency manipulator’ in 2020 for operating a monetary system based on an external anchor for domestic stability.
The USTR determination came shortly after Treasury Secretary Janet Yellen met State Bank of Vietnam (central bank) Governor Nguyen Thi Hong and issued a joint statement saying the Dong will not be devalued for trade advantage.
“The determination finds that the Treasury-SBV agreement provides a satisfactory resolution of the matter subject to investigation and accordingly that no trade action is warranted at this time,” a USTR statement issued on July 23 said.
“USTR, in coordination with Treasury, will monitor Vietnam’s implementation going forward.”
Vietnam has insisted that the strong exchange rate is used for domestic stability and is not related to trade and promised not to devalue the Dong.
“I commend Vietnam for its commitment to addressing U.S. concerns with its currency practices and setting an important example for the Indo-Pacific region,” the USTR said, while adding language to cast doubt on the SBV external anchor based monetary policy and instead went barking up a proverbial Mercantilist tree.
“American workers and businesses are stronger when our partners value their currency fairly and compete on a level playing field.
“Going forward, in coordination with Treasury, we will work together with Vietnam to ensure implementation, and we will continue to examine the currency practices of other major trading partners.”
Vietnam dong collapsed in 2010 from 15,000 to 21,000 after trying to do ‘stimulus’ when the Fed’s housing bubble burst. Since then the currency has been kept around 22,000-23000 to the US dollar.
The US and International Monetary Fund has falsely accused Vietnam of ‘undervaluing’ the Dong despite having a real effective exchange rate index of around 130 because the country has a current account surplus.
The surplus comes partly from SBV mopping up of inflows (sterilized forex purchases) and partly from outward investments by Viet Nam companies due to the strong currency.
The US Treasury in 2020 based on Mercantilist dogma falsely labeled the Vietnam Dong and Swiss Franc – one of the strongest currencies in the world – for manipulation (read undervaluation) much to the amusement of classical economist.
The July 23 state also repeated false accusations made in January that interventions were ‘one-sided’.
“On January 15, 2021, USTR issued a determination that Vietnam’s acts, policies, and practices including excessive and one-sided intervention in the foreign exchange markets and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce,” the statement said.
Vietnam however intervened heavily in forex markets, ran liquidity shortages and pushed up short term rates in 2015 losing billions of dollars in forex reserves when Yellen tightened policy by quantity tightening and also in 2018, when she hiked rates and engaged in further quantity tightening.
Sri Lanka’s non-credible ‘flexible exchange rate’ collapsed on both occasions as liquidity was injected.
SBV promised US not to devalue its peg which has built up substantial credibility and promised more ‘exchange rate flexibility’. (Colombo/July23/2023)