Washington takes some pressure off Vietnam by lifting the currency manipulator designation, saying it found insufficient evidence under an earlier 1988 law to conclude the country has indeed manipulated exchange rates to gain a trade advantage.
After tagging the country in December 2020 of deliberately devaluing its currency against the dollar to gain advantage, the US Treasury Department said Vietnam tripped its thresholds for possible currency manipulation under a 2015 US trade law, but refrained from formally branding the country as a manipulator.
Vietnam’s central bank on Saturday welcomed the US’ action and further reiterated that the country’s exchange-rate management policy was in line with other economic goals.
The State Bank of Vietnam said its monetary policies are not meant “to create an unfair competitive advantage in international trade” for Vietnam and are intended to control inflation and support growth, according to a statement.
“The State Bank has applied measures to gradually improve the flexibility of the exchange rates while maintaining the foreign currency market in a stable manner,” it said. “The US Treasury Department has recorded positive developments in Vietnam’s foreign currency market and the central bank’s performances.”
The US said that it acknowledges the economic impacts of the coronavirus pandemic to countries, which may have led to creative policy responses to coping with the crisis.
To be labeled a manipulator, countries must have at least a 20 billion dollar trade surplus with the US and they also have to have a record of significant intervention in currency markets. Basically, a low exchange rate for Vietnamese dong means that companies in Vietnam that sell goods to the US earn more dong from the dollars they receive from US customers, while American businesses would pay more to exchange the dong.
During the first semi-annual foreign exchange report issued by Treasury Secretary Janet Yellen, the Treasury said it will commence "enhanced engagement" with Taiwan and continue such talks with Vietnam and Switzerland after the Trump administration labeled the latter two as currency manipulators in December last year.
The Treasury said Vietnam, as well as Taiwan and Switzerland, exceeded 2015 currency thresholds during 2020 — a more than $20 billion bilateral trade surplus with the United States, foreign currency intervention exceeding 2% of gross domestic product, and a global current account surplus exceeding 2% of GDP.
Despite the finding, there was not enough evidence under an earlier 1988 law to conclude that Vietnam, Taiwan, or Switzerland manipulated exchange rates to prevent the balance of payment adjustments.
"For the calendar year 2020, we have not made a finding regarding the manipulation designation," a Treasury official told Reuters, adding: "We don't view this as a mixed message."
Yellen further said that the Treasury is working tirelessly to address efforts by foreign economies to artificially manipulate their currency values that put American workers at an unfair disadvantage.
The enhanced engagement includes formal talks to urge Vietnam, Switzerland and Taiwan to develop plans with specific actions to address underlying causes of currency undervaluation and external imbalances, the Treasury said.
The talks will also help the Treasury determine the reasons for the three trading partners to make substantial currency market interventions.
Vietnam’s new leaders have made resolving the trade and currency tensions with the US, its largest single export market, a top priority.
Whether the dropping of labels is the US government’s way of trying not to offend allies, Vietnam's foreign ministry said it will “maintain dialogues and consultancy with the US over this issue."