One US dollar will be worth 18,932 Vietnamese dong tomorrow, up from 18,544 since February. This 2.1 per cent devaluation is the third since November of last year. The move will help exports in a country recently downgraded by Fitch.

Recent dong devaluations:
(1) November 2009 (16,992->17,941, 3.4 per cent);
(2) February 2010 (17,941->18,544, 5.6 per cent).

Vietnam’s central bank said on Wednesday it was devaluing the dong’s mid-point reference rate by more than 3 per cent to 18,544 per dollar from 17,941 effective on Thursday. The move was designed to help balance supply and demand of foreign exchange, increase the liquidity of foreign exchange in the market and contribute to controling the trade deficit and stabilising the macroeconomy, the bank told Reuters.

Vietnam devalued the dong by more than 5 per cent in November of last year.

Simone Baribeau

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Long queues are reported at shops in Caracas, following the surprise devaluation of the bolivar on Friday.

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Competitive devaluations threaten trade wars, says Michael Pettis, citing the Vietnamese devaluation. The theory is that countries unable to devalue will be forced to raise tariffs. This comes as North Korea strikes two zeros off its currency, the won. But the picture is more complex than that. Chris Giles agrees that competitive devaluations could lead to currency trade wars, but argues the devaluation of the dong – still under pressure – is not the trigger. Neither is the won.

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Russia has lowered rates and Vietnam has raised them. This is the ninth cut since April for Moscow – they are trying to slow the appreciation of the rouble and revive lending. Hanoi has devalued the dong by more than five per cent and raised rates by a full percentage point in an effort to curb inflation. The Vietnamese move is not the start of the mooted currency war.

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Vietnam announced on Wednesday that it will devalue the dong by over 5 per cent, raise interest rates and request big exporters to sell foreign exchange to the central bank in a dramatic attempt to underpin the beleaguered currency. The central bank also said it would reduce the trading band of the dong against the dollar to 3 per cent above and below a daily mid-point set by the central bank from 5 per cent (Reuters, more here).

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