The State Bank of Vietnam (SBV) earlier this month bought a huge volume of U.S. dollars in an effort to prevent the greenback from devaluing against the local currency, the Vietnam dong, to promote export.

The effort was made as the SBV tried to keep its word on stabilizing the dong value to support local exporters.

At a banking sector meeting in Hanoi on Wednesday, SBV Governor Nguyen Van Binh said the central bank will buy more U.S. dollars available in the local market if necessary.

The statement came some days after the local currency seemed to gain value against the U.S. dollar after being devalued by one percent against the greenback on June 19.

It also implied that the SBV has proactively managed the development of the monetary market to make timely moves, local experts said.

Also at that meeting, Governor Binh said that the SBV will keep interest rates of the dong stable from now until the end of the year. As a result, the policy rates of the dong will be hardly adjusted as the key objective is to ensure its value.

Along with a commitment to keep the exchange rate between the dong and the U.S. dollar stable, the SBV’s message is that local commercial banks and people should keep the dong for their business as it will be more profitable than converting the currency into the greenback.

Rolling up sleeves

On Tuesday, the SBV purchased over $60 million, helping raise the price of the U.S. dollar by creating a demand and thus putting a stop to the devaluation of the greenback against the local currency. The SBV transaction offices on that date quoted the bid and ask prices of the greenback at VND21,200 and VND21,400, respectively.

The decision came many days after the dong regained its value against the greenback with the latter’s selling price dropping VND180-200 compared to the official rates to around VND21,200 to the dollar.

"The supply of foreign currency is so plentiful that banks continuously cut the dollar price," insiders said. Meanwhile, the dollar price in the free market has also kept plunging.

Moreover, the central bank bought a very large amount of U.S. dollars two days after the first purchase. Though the exact figure was not revealed, it is believed to be much higher than the Tuesday buying.

With all the developments, the foreign exchange reserve now keeps increasing significantly after reaching a record level of $35 billion by the end of May. The SBV added over $10 billion to the national foreign exchange reserve in the first five months of this year.

“Without buying such a large amount of foreign currency available in the local market, the price of the dollar will go down due to surplus supply, thus making the dong appreciate against the greenback and causing Vietnamese exports to be more pricey and less competitive in the world market,” SBV Governor Binh said at the Hanoi meeting.

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