Vietnam needs to give its currency enough leeway to depreciate and not deplete its foreign reserves by trying to prop it up, a senior World Bank official said on Tuesday.

Vietnam's dong has weakened 2.5 percent this year, which traders say stems from the U.S-China trade war, and it remains near a record low against the U.S. dollar reached last month.

The State Bank of Vietnam (SBV) adjusts the central rate of the dong daily and allows the exchange rate to fluctuate 3 percent up or down from it.

Victoria Kwakwa, the World Bank's vice president for East Asia and Pacific, said on the sidelines of the World Economic Forum in Hanoi that Vietnam needs to ensure flexibility in its currency management.

"You have to give yourself the room for some depreciation -- if needed -- so you're not spending precious reserves. .. it's not too bad as of now, but they have to continue to watch and make sure they're not getting stuck on a particular range."

Vietnam's foreign reserves hit a record high of about $63.5 billion in June, as the dong was depreciating as trade tensions between Washington and Beijing escalated. The June figure was the last Vietnam has announced on foreign reserves.

On Aug. 1, Prime Minister Nguyen Xuan Phuc said Vietnam "needs to stabilize the exchange rate and keep it flexible within a 2 percent band compared with the end of last year" to ensure stability for the Southeast Asian economy that relies strongly on exports and foreign investment.

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