An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.
"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.
Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.
The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.
In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.
It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.
Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."
Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.
This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."
But he said it is not easy to say the dong is necessarily overvalued.
In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.