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Discussion 2

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Thùy Dương
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TOPIC

The foreign exchange market of Vietnam


1. Overview of Vietnam foreign exchange market:
In the digital age, the Vietnamese foreign exchange market is growing strongly on a
large scale, reflecting global economic integration. There are many factors affecting the
Vietnamese foreign exchange market, some of which are prominent, such as the State
Bank, exchange rates and foreign currency supply and demand. The State Bank plays a
role in regulating exchange rates to stabilize the macroeconomy, and supports
intervention when necessary. These can directly affect exchange rates and trading
activities in the foreign exchange market. Along with that development, the government
has applied strict management and control policies to limit risks and maintain stability
in foreign exchange trading activities.
2. The current exchange rate regime in Vietnam:
Vietnam has adopted the Managed Floating Exchange Rate System since 4 th
January, 2016; the central rate which is announced by the State Bank of Vietnam (SBV)
daily. From the basket that consists of USD, EUR, JPY, CNY currencies, and
macroeconomic indicators this rate is predetermined. This regime in the short run is
easy with supply and demand in the market since it promotes exports as well as acts as
a shock absorber; the vice involves high volatility of exchange rate as well and imported
inflation.
Therefore, where the opening integration is high, SBV enables definition of
reasonably appropriate foreign exchange rate to minimize the impact of shocks as well
as inflation on the larger economy. But he noted that: However, to study changes of
GDCs, one has to reduce reliance on the “USD “and “link it effectively” to other tests
and information on changes in monetary policies.
3. Challenges and opportunities:
+ Challenges: Exchange rate fluctuations are affected by global monetary policies and
economic factors such as inflation and energy crises. The legal system is not yet
synchronized, causing difficulties in risk management and fraud handling. Transactions
are still focused on the USD, limiting the ability to diversify other currencies.
+ Opportunities: Vietnam's economy is growing steadily, attracting foreign investment
flows, boosting foreign exchange demand. International economic integration through
free trade agreements such as CPTPP and RCEP creates momentum for global trade.
Financial technology (Fintech) is developing, improving efficiency, transparency and
transaction convenience.
Therefore, Vietnam needs a reasonable strategy to handle challenges and take
advantage of opportunities, promoting sustainable market development.
4. Conclusion:
Vietnam is continually developing its foreign exchange market while facing many
difficulties such as risk management or illegal trading platforms.
There are some solutions to help the foreign exchange market of Vietnam more
effectively. The State Bank of Vietnam and relevant agencies must stabilize the macro
economy, enhance VND's convertibility and tighten exchange rate settlement
procedures. Besides, the commercial banks need to be more diversified in the foreign
exchange products, the application of advanced technology and enterprises should apply
modern tools to effectively control the risk of exchange rate. Cooperation could enhance
Vietnam’s position in the global financial system, encourage economic growth, and
stabilize markets.

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