US Treasury says Vietnam currency was undervalued in 2019

[WASHINGTON] The US Treasury has determined that Vietnam's currency was undervalued in 2019 by about 4.7 per cent against the US dollar due in part to government intervention, according to a new valuation assessment sent to the US Commerce Department.

In the assessment conducted for an anti-subsidy investigation by the department into light vehicle tire imports from Vietnam, and seen by Reuters on Tuesday, the Treasury said the undervaluation was influenced by Vietnamese "government action on the exchange rate".

The assessment is the first issued by the Treasury under a new US rule that allows the Commerce Department to consider currency undervaluation as a form of subsidy when determining anti-subsidy duties, potentially increasing them.

The department in June began probing dumping and unfair subsidy claims against tire imports from Vietnam, South Korea, Thailand and Taiwan. The probe was initially sought by United Steelworkers, which represents workers at many US tire plants.

Treasury's determination that Vietnam's dong is undervalued could increase the chances that the Treasury designates Vietnam a "currency manipulator" when it issues its long-delayed semi-annual currency report. Such a designation would require Treasury Secretary Steven Mnuchin to seek bilateral consultations with Hanoi to try to correct the situation.

But the two determinations use different methodologies and rely on different US statutes.

It would be certainly possible for a currency to be determined as undervalued for the Commerce Department's purposes but still not meet the Treasury's tests for manipulation under 1988 and 2015 foreign exchange laws, said Mark Sobel, a former Treasury and International Monetary Fund official who is now US Chairman for the Official Monetary and Financial Institutions Forum think tank.

In its assessment letter to Commerce, the Treasury said Vietnam made US$22 billion state foreign exchange purchases in 2019, including through the State Bank of Vietnam, which pushed down Vietnam's real effective exchange rate by 3.5 per cent to 4.8 per cent.

It said the country's action caused the dong exchange rate, which was a nominal 23,224 per US dollar in 2019, to be about 1,090 dong lower than levels consistent with equilibrium real exchange rates. On Tuesday, the Vietnamese dong traded at 23,170 per US dollar on the interbank market.

REUTERS