Saigon Investment spoke with Mr. TRAN THANH HAI (photo), Chairman of the Board of Directors of Phu Tho SJC, to discuss all these vital issues and the effects of the current crisis on the economy.
JOURNALIST: - Sir, the Russia-Ukraine conflict has caused the USD Index to cross the 97 mark. What do you think about this and the effect on gold prices too?
Mr. TRAN THANH HAI: - Global financial professionals can clearly see the collapse of the Russian economy. The Russian stocks have evaporated rapidly and the Russian rubble has slumped against the US dollar. The US is playing a lead role in supporting the EU fight against Russia in Ukraine. Therefore, the US dollar has been on the rise and has risen by more than 6% within a week since 2 February.
In principle, an increase of the USD Index usually causes the gold price to fall, but in this case the gold price also goes up along with the increasing price of oil. It is easy to understand that the oil price soars due to the broken supply chain, but why is the gold price rising? It is all because the USD index has risen, and the US dollar has become stronger and the risks of the conflict have made investors seek safer shelter in gold.
When the US and EU removed Russia from the international Swift payment system, the Russian rubble plummeted, causing the US dollar to lose part of its market share. To a certain extent, the US dollar sees its share shrinking in the Russian market. As a result, the US dollar is somehow getting weaker. This is what has caused the gold prices to rise.
This is the direct impact of the current Russia-Ukraine conflict. Mr. Jerome Powell, Chairman of FED, has said that it is very likely that they will raise interest rates and it is under consideration whether to hike by 0.5% or by 0.75%. There are now two conflicting terms being used, that of inflation, and another of invasion, yet the US must raise interest rates, and the EU in general and the UK in particular must also raise them.
Any hike in interest rates will make the USD Index rise, probably higher than the current level of 97. When the US dollar rises, the gold price will fall. The gold price will probably rise for some time before it will finally fall due to FED decision to raise interest rates this month, or it may just remain flat.
- Sir, how do you think this situation will affect the US dollar against the Vietnam dong?
- In the last two weeks, the US dollar against the Vietnam dong did not fluctuate much, and it even rose a little. We should know that Vietnam's exports to Russia account for a small share of our total exports. Therefore, the Russia-Ukraine conflict does not have a considerable effect on Vietnam's exports. This is the reason why Vietnam is not much affected by the Russian rubble. Nevertheless, Vietnam's export surplus to the US market has caused the US dollar against the Vietnamese dong to rise slightly.
That is just a short-term situation, though. Considering a longer term from early January 2022 until 3 March 2022, the US dollar against the Vietnam dong has risen from VND 22,700 to the dollar to VND 22,800 to the dollar. Since the outbreak of the Russia-Ukraine conflict, the US dollar against the Vietnam dong has been around VND 22,800 to the dollar. So we can see that since early 2022, even before the conflict broke out, the VND has slumped a little against the US dollar, because the USD index is expected to rise as FED plans to raise interest rates in March.
However, Vietnam's export surplus to the US in 2021 raised our foreign currency reserves, thereby reducing the VND decline against the dollar, but only about 100 dong.
- Sir, the difference in the gold price in the domestic market and that in the global market is now very high, up to VND 13 million to VND 14 million per tael. Does this have any effect on the US dollar against the Vietnam dong exchange rate in the short term and also in the long term?
- In principle, Decree 24/2012 on management of gold trading took a firm grip on the production, trading, raising and lending of SJC gold bars. Whenever gold prices in the international markets go up or when there is a big difference between the domestic price and international price, the US dollar rates will increase against the Vietnam dong, and the VND will fall against the dollar, because more people try to gather the US dollar to import gold.
However, the government and the State Bank of Vietnam have a pretty successful policy against this. The control of border trade has been stricter in an effort to contain the Covid-19 pandemic and combat border smuggling. This is why the exchange rate has not risen much despite the big difference between gold price in the domestic market and that in the global market.
In a meeting late last year, Mr. Nguyen Thi Hong, Governor of the State Bank of Vietnam, predicted that inflation this year could increase because of the introduction of the Covid-19 economic relief package and FED interest rate hike that will make the US dollar stronger. These two factors, together with global inflation, will cause the prices of some raw materials and fuel to go up in the global market, and the Customer Price Index and Inflation Index will also rise. These will push up the US dollar to rise more against the Vietnam dong.
An exchange rate hike may also be caused by the government policy designed to limit imports and encourage exports. This factor is rarely mentioned. The domestic currency is allowed to plunge in an attempt to encourage exports and limit imports. In addition to hike in the US dollar index and prices of raw materials, I believe that it is vital to adjust prices for inflation as a measure to encourage exports and limit imports. Vietnam does not proactively devalue its domestic currency, yet it is fitting that we follow the global trend.
- Thank you very much.
