The State Bank of Vietnam (SBV) should widen the US
dollar trading band to help commercial banks set exchange rates more
flexibly, a former central bank chief said.


SBV ex-governor Cao Sy Kiem told Thanh Nien Daily: “In
2009 the exchange rate will see a lot of volatility. We should flexibly
adjust the rate, not letting it move too high or too low so that both
firms with large dollar loans and exporters benefit.”


The dong Tuesday traded at VND16,970 per dollar in the
interbank market in Hanoi, compared with VND16,972 Monday, according to
the SBV.


Inter-bank forex trade is only permitted within a band of 3 percent on either side of a midpoint set daily by the central bank.


The rate in unofficial markets in Hanoi and Ho Chi
Minh City Tuesday was around VND17,640. Last Friday it hit VND17,670,
according to telephone directory information service 1080, run by
state-owned Vietnam Posts and Telecommunications.


“The depreciation of the dong in line with supply and
demand is indispensable to combat the economic slowdown, help firms
remain stable, and enable them to grow when the world economy
recovers,” Kiem said.


Economist Bui Kien Thanh said the dong would
depreciate this year since inflation is not expected to be fully tamed.
“Inflation is still over 10 percent, so the exchange rate will be
affected.”


The dong would also be devalued to support exports, he
said, noting that the central bank should control the depreciation to
ensure it is orderly.


Citigroup forecast in January the dong would
depreciate to VND17,948 per dollar by the end of 2009 – around 2.6
percent below the current interbank rate of VND17,484 – due to a
decline in exports, tighter foreign direct investment and lower
remittances from Vietnamese abroad.


Vu Thanh Son, general director of the Hanoi Trade
Corporation, said: “A number of countries have depreciated their
currencies. If Vietnam does not adjust exchange rates, it will not
improve export competitiveness.”


The country should consider the benefits of both exporters and importers and publicize a devaluation roadmap, he said.


Central bank rejects devaluation


But SBV Deputy Governor Nguyen Dong Tien told a
conference in Hanoi Tuesday that currency devaluation is unwanted in
some countries. The depreciation of the dong would affect inflation,
bank deposits and people’s trust in the government’s economic
management.


“There will not be a devaluation of the dong this
year. In 2008, the dong fell 9.5 percent. This is already a big
depreciation. The exchange rate policy has to be considered in many
aspects, not just exports,” he said, noting that the dong fell just 1-2
percent in past years, but exports still grew over 20 percent.


To minimize risks from exchange rate fluctuations,
firms should not speculate in dollars or believe rumors, Kiem said,
adding that the SBV has said it has enough dollar reserves to cover
imports.


In early February, the reserve stood at US$22 billion,
slightly up from $21.9 billion estimated last October, according to the
SBV.