Yuan’s global popularity to impact Vietnam’s economy

                                                               China's Yuan - (Photo: vtc.vn)

The inclusion of China’s yuan into the International Monetary Fund (IMF)’s basket of reserve currencies on October 1 will impact finance across the globe, and Vietnam is no exception.

The yuan joined the US dollar, the euro, the yen and British pound in the IMF’s special drawing rights (SDR) list of currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.

According to economist Nguyen Minh Phong, the change will have both positive and negative impacts on Vietnam’s economy.

He suspects China will now have to restrain its devaluation of the yuan in order to take more responsibility in applying policies to harmonise global benefits. The expected stability of Chinese foreign exchange policies would therefore benefit Vietnam’s economy.

Also, if the yuan becomes even more popular, stable and healthy, then Chinese and Vietnamese firms would not have to use the US dollar in payment.

The shift could also help stabilise the payment and trade relations between the two countries.

However, Phong was concerned that a high reserve of the yuan could create favourable conditions for China to dominate Vietnam’s currency policies.

Especially, Phong noted, Vietnamese firms would be at a high risk of Chinese takeover, as many Vietnamese firms are scheduled to be equitised.

Phong therefore suggested that the country scrutinise the proportion of yuan in its reserves.

Expert Nguyen Tri Hieu, however, argued that the impacts on Vietnam’s economy would be limited and indirect.

Hieu said when the yuan joins the IMF’s SDR basket and takes a new role in international payment, its value will increase. If the yuan’s value increases, the US dollar will devalue compared with the yuan. At that time, Vietnam’s exports to China will have advantages, while its imports from the market will face disadvantages.

Meanwhile, Vietnamese exporters and importers said that the inclusion of China’s yuan into the IMF’s basket would not affect their trade in the short run.

Nguyen Van Sua, Vice Chairman of the Vietnam Steel Association, said that in the immediate future many firms, including both Vietnamese and China, would remain the habit of using the US dollar in payment.

However, in the long run, a more prevalent yuan in payment would impact Vietnam’s exports and imports.

Sua said when the yuan’s value and popularity increase, Chinese partners could suggest making more use of the yuan in payment. Prices of materials and equipments imported from China will increase, causing Vietnamese commodities to cost more.

To minimise the impacts, Sua suggested that domestic firms capitalise on advantages from the free trade agreements Vietnam has signed in order to diversify material import markets.

Managing director Nguyen Thi Thu Hien of the Hanoi Trade Corporation (Hapro) said that Vietnamese firms, which have trade ties with Chinese partners, would benefit from the IMF’s decision thanks to a more stable yuan./.

Source: VNA