Vietnam to use reserves, won’t devalue

Vietnam will use its foreign exchange reserves to cover a shortage of dollars which is sharply pushing down the dong, but will not devalue its currency at least through early 2011, state media said on Thursday.

The government has requested the central bank to conduct “strong enough intervention” and inject dollars to stabilize the market, the Vietnam Economic Times quoted Le Duc Thuy, Chairman of the National Financial Supervisory Commission, as saying in an online report.

The shortage of dollars, caused by strong demand from businesses, has been putting heavy downward pressure on the dong, which was trading around VND21,000 to a dollar from around VND20,450 on Monday.

But state broadcaster Vietnam Television quoted Thuy as saying the central bank will neither widen the trading band nor change the official foreign exchange rate until the Lunar New Year, which will start in early 2011.

Thuy was speaking on behalf of the government, the VTV said.

The government said another devaluation at this point in time is not advantageous and may have negative impacts on inflation, the online report quoted Thuy as saying.

Vietnam’s foreign exchange reserves have shrunk, but it is still large enough to stabilise the market, it cited Thuy as saying.

The reserves is now equivalent to six or seven weeks of import, the report said.

The International Monetary Fund said in September Vietnam’s foreign reserves had been growing after a sharp drop.

It estimated that international reserves, including gold, would grow to $15.4 billion by the end of 2010 and $19.2 billion next year, from $14.1 billion at the end of 2009.

Vietnam’s foreign exchange reserves dropped sharply from 2008 through the middle of this year as foreign currency inflows flagged during the global slowdown and Vietnamese switched to dollars and gold fearing the worst for their own currency.

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