The State Bank of Vietnam (SBV) has said it will keep the exchange rate between the U.S. dollar and the Vietnamese dong changing within two percent next year to help reduce dollarization and stabilize the local currency’s value.

Governor of the SBV Nguyen Van Binh said at a meeting on Wednesday in Hanoi that he will not let the dong depreciate against the dollar by more than two percent in the coming year.

This is to diminish the dollarization of the national economy and maintain the value of the dong throughout the year, as similarly targeted by the SBV – Vietnam’s central bank – in 2014 and earlier years.

Evaluating the SBV’s management of the foreign exchange market this year, Governor Binh said it has operated consistently and proactively, facilitating the reduction of the dollarization of the local economy, strengthening the confidence of the people in the Vietnamese currency, and enriching the country’s foreign exchange reserves.

In 2014, the central bank also put a two percent cap on the fluctuations in the exchange rate between the greenback and the dong.

By mid-year, the SBV had adjusted the average interbank rate by one percent, which in turn devalued the dong by one percent and brought the greenback’s value to VND21,246.

Speaking at a meeting of the National Assembly in September, Governor Binh stressed 2014 would be the third consecutive year the SBV had stabilized the exchange rate and allowed it to change within an allowable range.

The SBV has never adjusted the rate by over two percent so far this year, while the foreign exchange market is still stable now, the governor said.

Vietnam’s foreign exchange reserves topped a record high of $35 billion in September, increasing from around $7 billion in 2011, the governor announced at the National Assembly meeting.

Complex developments

The information on the stabilization scheme for the exchange rate next year followed a historic surge of the greenback over the dong.

On December 12, the exchange rate went up over the VND21,400 mark – the highest in history – amidst forecasts that Vietnam’s central bank would raise the official rate in the first quarter of next year.

In its investment strategy report released in early December, Vietnam Dragon Securities Corp (VDSC) said: "Considering the psychological factors and market demand, we forecast that the central bank will devalue the dong by one percent against the greenback in the middle of the first quarter of 2015.”

According the VDSC, the exchange rate between the dollar and the dong has increased in recent months, and in November local commercial banks adjusted it by 0.6 percent compared to the previous month.

But during the first week of December, the rate fell after news of an intervention by the central bank spread.

In early October, it suddenly rose, bringing the price of the dollar close to VND21,400, after staying stable for the first nine months of this year due to speculations that the SBV would adjust the exchange rate.

The central bank then announced that it would not revise the exchange rate, but would be willing to sell foreign currencies if necessary, after seeing that the rise of the rate was mainly due to psychological effects rather than supply shortage.

According to the calculations of some commercial banks, by the afternoon of December 1, the SBV had sold about $1.1 billion to intervene in the foreign exchange market.

The intervention, along with low demand for the dollar earlier this month, helped bring down the exchange rate, according to these banks.

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