next article

Vietnam wary of plea to expand Chinese currency transactions
By Hong Suong - Thanh Nien News -

Vietnamese people pay goods in China's renminbi at Dong Van Market which sits along the border of the northern province of Ha Giang. Photo: LQP Vietnamese people pay goods in China's renminbi at Dong Van Market which sits along the border of the northern province of Ha Giang. Photo: LQP

After Chinese businesses asked Vietnam to loosen its restrictions on CNY transactions in Vietnam, economists began to warn that the plan, if approved, could place the national economy in jeopardy.
Under Vietnam’s current laws, CNY is only permitted for use in cross-border trade.
The proposal was made by the China Business Association in Vietnam and the Industrial and Commercial Bank of China, which claimed that the demand for conducting transactions in Chinese currency is quite high and obviously increasing. re
They estimated the value of cross-border CNY payments at around US$15 billion by the end of 2013. 
If CNY were expanded into all areas of bilateral trade, the State Bank of Vietnam, could better manage its renminbi reserves, collect taxes and prevent money laundering.
Replacing US dollars with CNY as the currency will have no effect on the trade surplus or deficits, the Chinese businesses said.
They also asked the Vietnamese government to allow the Chinese bank to perform CNY-related services in collaboration with local banks that have already been licensed to conduct CNY-VND exchanges.
Economist Nguyen Minh Phong of the Hanoi Institute for Socio-Economic Development Studies, told Thanh Nien the proposal was “understandable,” given China’s desire to internationalize the CNY--as evidenced in its currency swaps with countries like Australia, Brazil, and Russia.
He found the proposal “unacceptable,” however, because allowing further renminbi transactions in Vietnam would deal a further blow to the economy.
Firstly, according to Phong, since CNY is not yet freely convertible on the international market, expanding its use would require Vietnamese businesses to take on risk.
Second, given that Vietnam’s trade deficit with China is already “very big,” local businesses will end up having to borrow money from China to pay transactions in CNY, the economist said.
“We will wind up depending on China, not just in terms of the goods we use, but the currency as well,” he said.
Figures from the Ministry of Industry and Trade showed that as of November of 2013, China remained the biggest importer of Vietnamese products. During an economic conference held in Hanoi last month, it was reported that the country’s trade deficit with its neighbor increased nearly 200 fold in the past decade.
Former state bank governor Cao Sy Kiem cautioned that given Vietnam's enormous trade deficit with China, further loosening restrictions on CNY transactions would allow even more Chinese goods into a market that's already flooded.
The proposal, therefore, must be considered “carefully,” he said.
Responding to Chinese businesses’ claim that the switch from US dollars to CNY as the payment currency would not affect trade deficits or surplus, Economist Phan Minh Ngoc said the move is mainly designed to benefit Chinese businesses
Chinese businesses that use renminbi wouldn't be subject to the risks implied in fluctuations in foreign exchange rates, especially the rate of VND/CNY, as well as charges related to currency exchange, he explained.
Moreover, if Vietnam pursued a big reserve of CNY in lieu of strong currencies like the US dollar, the country will find itself vulnerable when times get tough, Ngoc noted.
Nguyen Duc Thanh, chief of the Vietnam Institute for Economic and Policy Research, said that transactions inside a country's borders should be conducted in that country's currency alone.
Although Vietnam currently accepts international payment in major currencies like US dollars and maintains an international currency reserve, in the past two to three years, the state bank has taken steps to remove US dollars from domestic transactions and scale down the issuance of US dollar loans, he said.
“This proposal from the Chinese business association, therefore, is unacceptable,” Thanh said.
Many businesses echoed that sentiment.
Nguyen Lam Vien, director general of Vinamit JSC, a dried-fruit and vegetable producer which has about 80 percent sales going in China, said most of transactions between Vietnamese companies and Chinese partners are carried out in US dollars.
Local businesses would find themselves at a significant disadvantage by having to pay 0.5 percent in fees to convert US dollars to CNY, Vien said, stressing that the surcharge would be “very huge” considering Vietnam’s trade deficit with China reached nearly $29 billion, last year.