In the latest currency manipulation report published by the US Department of the Treasury in December 2020, Vietnam was designated as a currency manipulator because it fulfilled three benchmarks set by the US. These include an intervention in the currency-exchange market as evidenced by Vietnam's net foreign currency purchases, which were equivalent to 5.1 percent of GDP (exceeding the benchmark set at 2.0 percent of GDP). Vietnam also fulfilled the other two benchmarks: A bilateral trade surplus with the US of more than USD20 billion and a current account surplus at 2 percent of GDP.
The weak Dong has been one of the factors helping support exports from Vietnam, which is already competitive in terms of manufacturing, and attract more foreign investment than its rivals. For this reason, Vietnam can bolster its production and exports at a faster rate. However, being labeled as a currency manipulator will likely make it more difficult for Vietnam to intervene in the foreign-exchange market ahead. In addition, as Vietnam's current account surplus is expected to increase further, supported by high growth in exports and foreign investment, the State Bank of Vietnam (SBV) may be pressured to revalue the Dong so as to minimize the risk of trade retaliation from the US.
KResearch is of the view that the gradual strengthening of the Dong within a limited range may not significantly undermine its export competitiveness over the short to medium term because of the advantage of Vietnam's manufacturing structure in terms of low labor costs. In addition, Vietnam has free trade agreements with many countries; the strong Dong has allowed it to import capital goods and intermediate products at lower costs and will unlikely affect the profit market in the Vietnamese export sector much. Looking ahead, as the Dong is set to appreciate on the back of the country's trade surplus, it is expected that the relevant authorities will gradually revalue the Dong when they deem appropriate to ensure that there is sufficient room for the economy to adjust. The move may help ease any adverse impact on Vietnam's export competitiveness and long-term investment while also helping dispel the accusation that Vietnam is a currency manipulator.
For Thailand, we at KResearch are of the view that an immediate challenge for the Thai government is to maintain the economic growth and stability of key mechanisms so that the country can survive the COVID-19 pandemic. Regarding the country's competitiveness, Thailand should accelerate its negotiations for various trade deals, including the CPTPP and EU-Thailand Free Trade Agreement. Meanwhile, issues related to foreign exchange rates are complicated and sensitive because there are both beneficiaries and non-beneficiaries involved. The implementation of non-market measures such as direct intervention in various forms may have long-term implications on the Thai government's credibility in the eyes of foreign investors. Therefore, those who make decisions must weigh all of these issues carefully.
 Foreign exchange intervention was monitored during the last four quarters before the report was published.