SBV widens forex trading band. What’s next? Economists have repeatedly urged the State Bank of Vietnam (SBV) to devalue the dong in response to the Chinese yuan devaluation. SBV, in its latest move, shows signs that it will continue stabilizing the dong.   “Vietnam needs to devalue the dong promptly, with reference to the Chinese yuan depreciation. For example, if China devalues the yuan by 5 percent, Vietnam needs to devalue the dong by more than 5 percent, possibly 6-7 percent,” said Nguyen Duc Thanh, director of VEPR on Bizlive. According to Thanh, China is the last large economy to devalue its currency. Prior to that, Japan, the EU, Russia and Australia all either had devalued their currencies, or accepted the currencies’ depreciation. This has made the dong, which is closely pegged to the dollar, become stronger against than other currencies. China once followed a policy on stabilizing its currency. However, it has decided to devalue the yuan as well. Regarding the time for the dong devaluation, Thanh said it should be done ‘as soon as possible’. “The State Bank’s commitments to stabilize the dong/dollar exchange are really conservative and unreasonable, and more importantly, it will lead the national economy to a serious imbalance, while macroeconomic uncertainties will occur soon,” he said. Nguyen Tri Hieu, a banking expert, also thinks that Vietnam should devalue the dong, or Vietnamese products will be expensive in the world market, and therefore, become less competitive. Meanwhile, Bloomberg quoted Adam McCarty, chief economist of Mekong Economics Company in Hanoi, as saying that the SBV’s move on widening the forex trading band by one percent recently has increased the market’s expectation on another dong devaluation decision. The expert commented that devaluing the dong will be good for Vietnam, because Vietnam needs to improve the competitiveness of its products. Bloomberg also quoted Fiachra MacCana, managing director of the HCM City Securities Company, as saying that the central bank may ‘take action’ in response to the Chinese yuan devaluation, and it is possible that the dong will be devalued by one percent more by end of the year. Meanwhile, Truong Van Phuoc, deputy chair of the National Finance Supervisory Council, tried to calm the public by saying that there was no need to panic about the Chinese yuan devaluation. Phuoc, in an interview with VnExpress, said the Chinese currency would not depreciate further and would appreciate again soon. Phuoc said the deficit in trade with China is caused by many factors rather than the exchange rate. Vietnam does not need to devalue its currency to boost exports because of the weaker Chinese yuan. Kim Chi, VNN