US resolves currency dispute with Vietnam
Biden administration deal removes an irritant in relations between the two countries
The US has reached a deal with Vietnam to resolve a dispute over the south-east Asian nation’s currency that had soured economic relations between the two countries during Donald Trump’s presidency.
Janet Yellen, the US Treasury secretary, announced the agreement at the end of a meeting with Nguyen Thi Hong, governor of the State Bank of Vietnam, on Monday, in a move that could stave off the threat of punitive tariffs on the Asian nation due to its currency practices.
“I believe the State Bank of Vietnam’s attention to these issues over time not only will address Treasury’s concerns, but also will support the further development of Vietnam’s financial markets and enhance its macroeconomic and financial resilience,” Yellen said in a statement.
The Biden administration had already withdrawn the currency manipulator designation imposed on Vietnam by Trump last December, but the deal reached on Monday will codify the detente. Under the deal, Vietnam’s central bank will underscore that its monetary policy is intended to “promote macroeconomic stability and to control inflation”.
Vietnam also said it would abide by IMF rules “to avoid manipulating its exchange rate in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage and will refrain from any competitive devaluation of the Vietnamese dong”.
It also pledged more transparency and flexibility in managing its currency. “The State Bank of Vietnam will continue to manage exchange rate policy within its general monetary policy framework to safeguard the proper functioning of the monetary and foreign exchange markets, to promote macroeconomic stability and to control inflation, not to create an unfair competitive advantage in international trade,” Hong said.
The US currency probes have been an irritant in the relationship between the two countries, which have aligned more closely on geopolitical issues in recent years due to their shared distrust of China. America’s trade deficit in goods with Vietnam is the third largest of any country so far this year, after China and Mexico.
Vietnam’s government pledged to buy more natural gas, coal, food, and other items from the US amid rising trade tensions with Washington in 2019. These peaked during the latter half of the Trump administration, when some American officials saw Vietnamese exporters as profiting unfairly from the trade war with Beijing, including by relabelling Chinese goods as “Made in Vietnam”.
In 2019 Trump called Vietnam “almost the single worst abuser of everybody” in remarks on trade that unsettled officials in Hanoi. Vietnam has repeatedly denied manipulating its currency.
By James Politi & John Reed – The Financial Times – July 19, 2021