From 2016 to 2020

1. Situation

Between 2011 and 2015, the State Bank of Vietnam successfully managed the
exchange rate policy strategically and effectively to help Vietnam's import and export
achieve achievements and contribute to economic development.

From 2016 to 2020, Vietnam's economy was affected by world events such as the
UK leaving the European Union, the results of the US presidential election, the US
Federal Reserve (Fed) raising interest rates, the escalating US-China trade war.
Especially in 2020, the outbreak of the Covid-19 epidemic caused economic difficulties.
The unstable international financial and monetary market put pressure on the USD/VND
exchange rate, requiring the State Bank of Vietnam to take measures to avoid VND
depreciation, control inflation and stabilize the economy.

2. Exchange rate policies:

In the face of instability of the international financial and monetary market, the
SBV managed the exchange rate policy in a new and more flexible way: the exchange
rate can be adjusted up / down daily but still ensure management according to the
regulated floating exchange rate regime. This new way of managing the exchange rate
has allowed the exchange rate to react more flexibly and promptly to domestic and
international developments.

Since 2016, the SBV has started to implement a new exchange rate management
method according to the central exchange rate mechanism and monetary policy
objectives are to ensure macroeconomic stability, strengthen people's confidence in VND,
and implement the Government's policy on anti-dollarization of the economy. Flexibly
manage the central exchange rate in combination with foreign currency intervention
buying and selling in accordance with market conditions; proactively communicate in
many forms to orient and stabilize market sentiment when there is adverse pressure;
coordinate closely with other monetary policy instruments (the liquidity of VND, interest
rates, credit...).

The central exchange rate is the exchange rate between VND and USD, which is
the official exchange rate at the closing hour at the end of the previous day, plus a certain
range decided by the State Bank based on market movements and taken as the next day's
exchange rate.
 The central exchange rate is formed based on 3 pillars:

(i) Reference base for the movement of the weighted average exchange rate in the
interbank foreign currency market.
(ii) Exchange rate movements in the international market of some currencies of
countries having large trade, borrowing, debt repayment and investment
relations with Vietnam.
(iii) Macroeconomic balances. Instead of being "pegged" to USD as before, 8 world
currencies are referenced to calculate the central rate: USD, EUR, CNY, JPY,
SGD (Singapore), Won (South Korea), TWD and Bath (Thailand). They are the
currencies with the largest proportion of investment and trade for Vietnam.

Based on the central exchange rate published daily on the SBV's website, credit
institutions and foreign bank branches will decide based on this exchange rate to decide
the transaction rate with their customers within the range of +/-3%.

On January 3, 2016, the State Bank of Vietnam officially announced the central
exchange rate of USD/VND is 21,890 - opening a new page in the history of exchange
rate management.

In 2017, the SBV continued to flexibly manage the central exchange rate.
Maintaining the difference between VND and USD interest rates at a reasonable level,
managing VND liquidity to both support exchange rate stability when necessary, and
supporting the goal of stabilizing interest rates in the market, enhancing the value and
position of VND. As a result, the exchange rate and foreign currency market were
generally stable. In particular, the USD exchange rate only fluctuated in a narrow range
of 22,590 - 22,880 USD/VND. By the fourth quarter, the USD/VND exchange rate still
tended to inch up but remained relatively stable.

The central exchange rate of VND against USD in 2017 was flexibly adjusted with
an increase of 1.4%. Meanwhile, the USD/VND exchange rate at commercial banks fell
by 0.18%, even on the free market, the USD price plummeted to 1.53%.

The main reason why the exchange rate went against the current trend every year
comes from the supply-demand relationship in the foreign exchange market. In the first
10 months of 2017, Vietnam had a trade surplus of 1.23 billion USD, foreign direct
investment (FDI) disbursed 14.2 billion USD, up 11.8% over the same period of 2016,
along with foreign indirect investment (FII), official development assistance (ODA) or
remittances all increased, bringing abundant supply in the foreign currency market. In
that context, the State Bank of Vietnam (SBV) moved to reduce the purchase rate in
USD.

In 2018, the central exchange rate announced by the SBV increased by about
1.6%, the transaction rate on the interbank market increased by about 2.7% compared to
the beginning of the year. The pressure on the exchange rate this year mainly came from
the international market, in which the two main factors were the impressive growth of the
US economy (GDP in 2018 was estimated to increase by 2.9% compared to 2.2% in
2017) along with the US Federal Reserve Bank (Fed) continued to raise the interest rate
of the USD four times a year, causing the USD to appreciate by 4.8%, causing foreign
currencies corresponding depreciation zones; and the US-China trade war increased
policy risks, reduced the growth momentum of many Asian economies and caused
regional currencies to depreciate quite a lot (CNY depreciates -5.9%, KRW -5.5%, MYR
-3.3%, SGD -2.6%, etc.) while these were the key currencies in the SBV's basket of
central exchange rate calculations.

In the first 5 months of the year, the USD/VND exchange rate movement was
relatively calm. But by the end of June 2018, when the CNY depreciated sharply (-4% in
just 3 weeks) and the Fed raised the USD interest rate for the second time in the year, the
pressure on the USD/VND exchange rate. After that, the USD/VND exchange rate
continued to be under great pressure and only began to show signs of cooling down in
mid-August 2018, when the USD/CNY exchange rate also began to create short-term
peaks. From mid-August to the end of the year, the USD/VND exchange rate was
basically stable.

For the whole of 2018, the VND declined of 2.7% against the USD showing that
the VND was much more stable than regional currencies. The positive changes in
Vietnam's macroeconomic picture had partly eliminated the negative influence from the
world and created favorable conditions for the SBV's exchange rate management as well
as confidence for participants in the market.

Foreign direct investment (FDI) inflows into Vietnam continued to remain high
despite fluctuations in the world market. According to the Ministry of Planning and
Investment, registered and supplemented FDI for the whole year was estimated at 35.5
billion USD (equivalent to 2017 level), FDI disbursement reached over 19 billion USD,
up 9% over the same period last year. Although M&A, divestment and equitization of
state-owned enterprises were not as active as expected, they also recorded capital inflows
of about 2 - 3 billion USD from foreign investors. In addition, although the stock market
index fell and investors withdrew capital from emerging markets (about 30 billion USD),
foreign capital inflows were still net buyers on Vietnam's stock market of about 1.5 - 2
billion USD. Besides, remittances in 2018 were estimated at about 16 billion USD (up
16% compared to 2017), while the demand for foreign currency loans decreased (because
the difference in interest rates on USD loans was still quite large, while the exchange rate
was under control), showing that the foreign currency supply and demand relationship
was quite good, creating room to manage the SBV's exchange rate policy.

In 2019, the USD/VND exchange rate had many "unexpected" developments. The
US-China trade war escalated, causing the yuan (CNY) to depreciate by an average of
nearly 5% against the dollar. In this context, the State Bank of Vietnam raised the central
exchange rate by about 1.5% (from 22,825 VND/USD at the end of 2018 to 23,164
VND/USD on 6/12/2019). Accordingly, the buying and selling price of USD at
commercial banks at the end of 2019 was almost unchanged compared to the same period
in 2018, fluctuating around 23,100 VND/USD (buying) and 23,250 VND/USD (selling).
This development contrasted with previous years, when the USD/VND exchange rate
always closely followed developments in the international currency market, especially
the movement of the CNY, as well as reacted relatively strongly to the SBV's exchange
rate adjustment policy. The reasons were:

First, the foreign currency supply and demand situation was also supported by
foreign direct and indirect investment flows. In fact, foreign direct and indirect
investment tended to increase continuously in the past few years and contributed to the
overall balance of payments which reached a surplus. Thanks to the abundant foreign
currency supply, the SBV had been able to net buy a large amount of foreign currency,
estimated at $6.6 billion since July 2019, thereby bringing the total national foreign
exchange reserves to $73 billion.

The second factor that made the exchange rate stable was that expectations of
VND depreciation had decreased significantly in recent years. This result was achieved
thanks to the Government always being consistent and prioritizing the goal of
macroeconomic stability, reducing the level of dollarization in the economy. The belief in
the value stability of VND caused the sentiment of foreign currency storage to drop
sharply, while encouraging people and organizations to sell foreign currency to the SBV.
The expectation of VND depreciation was also because economic actors increasingly
realized that Vietnam's trade balance in recent years had been less dependent on
fluctuations in exchange rates, including fluctuations of CNY.

In 2020, the USD/VND exchange rate after fluctuating strongly in the last 2 weeks
of March 2020 returned to a stable state with a downtrend in the second and third
quarters. Until September 30, exchange rates on the interbank and black markets were up
0.1% and 0.3%, respectively, from the end of last year, while the central rate was up
0.3%. Compared to other currencies in the region, VND continued to be rated as a stable
currency in the first 9 months of this year.

The main reason for the stability of the USD/VND exchange rate was thanks to the
clear downward trend of the USD in the international market. Specifically, after soaring
more than 8% between March 9 and 20, the USD index plummeted to its lowest level in
the past 4 years due to the Fed's monetary easing policies and US fiscal support packages.
In addition, the SBV's active purchase of USD to increase foreign exchange reserves over
the past nearly 1 year had also partly stopped the decline of the USD/VND exchange rate
in the interbank market and helped the VND depreciate relative to other currencies in a
basket of 8 reference currencies, especially with currencies like CNY, EUR, JPY, etc.

Foreign currency supply was assessed to remain abundant in the fourth quarter of
2020, when import and export activities recovered and FDI disbursement was still
relatively good. Meanwhile, the number of remittances increased sharply at the end of the
year.

3. Impacts on export

With the central exchange rate, in general, in the period of 2016-2020, despite
fluctuations from world economic events and especially in 2020, the world economy
suffered heavy losses, the exchange rate remained stable.

Average exchange rates of the period:

Year Average exchange rate (USD/VND)

2016 21.935

2017 22.370

2018 22.602

2019 23.050

2020 23.208

Source: Key Indicators Database

 The stability of the exchange rate was maintained thanks to such supporting
factors as:

(i) The central exchange rate mechanism and tools to regulate the foreign
exchange market were gradually effective, limiting speculative behavior and
holding foreign currency;
(ii) The supply of foreign currency was relatively abundant because the trade
balance continued to surplus, foreign direct investment (FDI) grew positively;

Thanks to the stable macroeconomy along with proactive and flexible

management measures, the foreign currency market in recent years had been generally
stable, foreign currency liquidity was smooth, the legitimate foreign currency demand of
enterprises and people had been fully and promptly met. The USD/VND exchange rate
was basically stable despite strong fluctuations in the world currency market, which was
a premise for people to sharply reduce their foreign currency holdings, thereby
converting foreign currency resources into VND for economic development, in line with
the anti-dollarization policy. The State's foreign exchange reserves significantly
strengthened which contributed to improving the country's financial potential and
prestige.

Exchange rate movements also limited the holding of foreign currency on

enterprises' accounts at commercial banks waiting for the opportunity for the exchange
rate to rise and narrowed the gap between the free-market exchange rate and the official
rate. The stable exchange rate as well as the clear management orientation of the State
Bank made commercial banks also more favorable in implementing their foreign
currency trading strategies.

The highlight of exchange rate stability was the implementation of the goal of
curbing inflation in managing monetary policy. Vietnam used to be an economy with a
trade deficit and a large trade deficit. Exchange rates fluctuated in the direction of
depreciating VND, leading to "inflationary imports" into the Vietnamese economy. This
was the most evident in the years 2009 - 2010 when the prices of many key and strategic
commodities in the world market increased sharply, plus the USD/VND exchange rate
also fluctuated greatly, leading to the "double import" of inflation into the economy. This
was one of the most important causes of high inflation in Vietnam. When the exchange
rate was stable, imported goods was stable, items with a high proportion of using a lot of
imported raw materials, spare parts, and components, etc. The price was also stable. The
period of 2016-2020 was a period of success in controlling inflation. Annual inflation
was controlled below the target set by the National Assembly: In 2016, inflation was at
2.66%; in 2017 at 3.53%; in 2018 at 3.54%; in 2019 at 2.79% and in 2020 at 3.23%.

Proactive and flexible management methods helped Vietnam's commodity prices

be competitive with those of exporting countries. Export turnover in the period of 2016 -
2020 grew dramatically and increased from 176.6 billion USD in 2016 to 281.5 billion
USD in 2020. On average, for the whole period of 2016 - 2020, export growth was at
11.8%/ year, higher than the target of 10% set in the XII National Delegate Document.

Export and export growth rate of Vietnam between 2016 and 2020

Year Export (Billion USD) Export growth rate (%)

2016 176.6 8.99

2017 215.1 21.82

2018 243.7 13.29

2019 264.3 8.44

2020 281.5 6.5

Source: General Department of Customs of

Vietnam

In general, Vietnam's export increased year by year. Although 2020, Covid-19 with
complicated developments, adversely impacted the economy. The production and export
faced limitations and difficulties, but the export turnover of goods in 2020 was estimated
at 281.5 billion USD, up 6.5% compared to 2019. The pace of export development
skyrocketed in 2017 as Vietnam received foreign direct investment (FDI), along with
foreign indirect investment (FII), official development assistance (ODA) or remittances
all increased so bringing abundant supply in the foreign currency market. At this time,
production supply was boosted, increasing the unexpected export growth rate. From
2017-2020, the growth rate gradually decreased because the USD currency fluctuated and
foreign investment capital slowed down. In the period of 2016 - 2020, import and export
activities grew impressively, with a scale of over 2,300 billion USD, of which the trade
surplus for 5 consecutive years, especially in 2020, Vietnam achieved a record high trade
surplus at 19.1 billion USD. The trade balance of goods reached a surplus, higher next
year than the previous year, created conditions for improving the balance of payments
and contributed to the stability of other macroeconomic indicators.

Trade surplus of Vietnam between 2016 and 2020

(Unit: Billion USD)

Source: General Statistics Office of Vietnam

The structure of exported goods continued to improve in a positive direction,

reduced crude export content, increased exports of processed products and industrial
products. The proportion and export growth rate of domestic enterprises was increased.
The list of export items had been expanded, the number of items with export turnover of
1 billion USD or more had increased over the years. The export market had been
expanded and diversified, many products of domestic enterprises gained a foothold and
competitiveness in many markets with high quality requirements, typically some
telecommunications enterprises. The import market for machinery and raw materials for
production shifted from Asia to the markets of Europe and America.
 Vietnam's main export markets in 2020

Source: General Department of Customs of

Vietnam

The structure of export markets shifted sharply towards market diversification and
multilateralization. Vietnam exported to more than 200 countries and territories, many
products were highly competitive in China, EU, USA, etc. By 2020, there were 31
markets with export turnover of over 1 billion USD (of which 3 markets achieved export
turnover of over 5 billion USD and 5 markets achieved export turnover of over 10 billion
USD).

In the period of 2016 - 2020, the economy grew steadily and improve, the
economic scale expanded, and the large balances of the economy were ensured.
Economic growth was maintained at a decent level in the period 2016 - 2019. Although
the growth rate of gross domestic product (GDP) in 2016 increased by 6.21%, lower than
the growth rate of 2015 (up 6.68%), in the next three years, the economy had a
breakthrough, the GDP growth rate next year was higher than the previous year and
exceeded the target set by the National Assembly in the annual socio-economic
development resolution, in which the GDP growth rate in 2017 reached 6.81%; in 2018
increased by 7.08% and was the highest increase since 2008; in 2019 increased by 7.02%.
On average, in the period 2016-2019, the GDP growth rate reached 6.78% and 0.87 %
higher than the average increase of 5.91%/ year in the period 2011 - 2015. Particularly in
2020, economic growth reached 2.91%, although it is the lowest growth rate of all years
in the period of 2011 - 2020, but in the context of the complicated development of the
Covid-19 epidemic, negatively affecting all socio-economic fields of countries around the
world, this is a great success of Vietnam with the highest growth rate in the world. On
average, in the period of 2016 - 2020, the GDP growth rate reached 5.99%/year, not
reaching the planned growth target (6.5 - 7%/year). However, Vietnam's economic
growth was ranked among the highest compared to other countries in the ASEAN region.

4. Review

The exchange rate management of the State Bank of Vietnam was mainly aimed at
stabilizing the domestic financial market in the face of adverse impacts of international
financial integration. Overall, the SBV had achieved this goal even though some years
ago due to the adverse impacts of the 2007-2009 global financial crisis and then the EU
sovereign debt crisis, which caused the domestic financial market to suffer very negative
impacts. But through reasonable and right market intervention, the foreign exchange
market gradually stabilizes, thereby helping to establish the stability of the financial
market.

The shift to a central exchange rate in recent years had demonstrated its
advantages in stabilizing the foreign exchange market while rapidly increasing
international reserves. The period of 2016 – 2020 became a bright spot of economic
development when strengthening confidence in the VND, reducing foreign exchange
holdings, and controlling inflation. At the same time, exports were also boosted because
of abundant supply and export growth rate made leaps and bounds in 2017. Although
2020 was affected by the Covid-19 epidemic, import and export faced obstacles, but the
total import turnover still increased. The scale of exports and the number of exported
goods increased. In 5 years, Vietnam's trade surplus increased year by year and in 2020
reached a record showing the development of the economy. The economic growth was
steady and improving, the economic scale was expanded, and the large balances of the
economy was ensured.

The exchange rate management of the State Bank of Vietnam showed that
although there were confusions in the early stages, after that, the exchange rate
management was increasingly improved, thereby helping the financial market operate
stably and achieved success. However, with a deeply integrated economy with trade
relations with most countries and territories, almost each country has a fiat currency, how
the central exchange rate was determined is also a problem that must have a satisfactory
solution because besides paying attention to trade weights, it was also necessary to pay
attention to the psychology of investors Investing in a market where many psychological
stages of investors affected by volatility very significantly, even deviating from the
calculations of managers.

REF
https://tapchicongthuong.vn/bai-viet/inforgraphic-xuat-khau-cua-viet-nam-giai-doan-
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https://www.gso.gov.vn/wp-content/uploads/2021/07/Nien-giam-Tom-Tat-2020Ban-
quyen.pdf

https://vov.vn/kinh-te/tang-ty-gia-usdvnd-han-che-den-nhap-khau-tich-cuc-cho-xuat-
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