Vietnam, with a small but fast-expanding economy, wants the restricted Vietnamese dong to be convertible in the international market, a central bank official said on Thursday.
Vietnam had a trade deficit of $1.32 billion in the first quarter of this year, against a $60 million surplus after the first three months of 2006.
The World Bank last week forecast that Vietnam's trade deficit would jump 26.5 percent to $7.98 billion this year from 2006.
But it also forecast that the country's foreign currency reserves plus gold would be boosted to $16 billion this year from $12.5 billion last year and $8.6 billion in 2005. Truong Van Phuoc, director of the central bank's Central Banking Department, said in March the central bank did not have any fixed outlook on the dong's movement against the dollar.
The central bank has allowed the dong to weaken so far this year just 0.07 percent against the dollar.
On Thursday the dong eased to 16,112 to the dollar, from 16,101 at the end of 2006.
dh note : ... smile ... who knows ??? ... would make sense on a lot of different levels ...
You can't imagine the amount of money going into Vietnam," said Peter Soh, head of foreign exchange in Singapore at DBS, Southeast Asia's biggest bank. "Everyone thinks Vietnam will follow China's path. The dong must strengthen."
Vietnam's benchmark stock index is up 29 percent so far in 2007, after gaining 145 percent in 2006, the world's best performance. The economy is the fastest among the six biggest in Southeast Asia.
Investors need derivatives to trade the currency because the government only allows them to buy dong for specific purposes, such as investing in stocks or building factories. The contracts are settled in dollars.
"It's very positive," and is in line with government goals of having the currency trade overseas, State Bank of Vietnam's deputy governor, Phung Khac Ke, said in an interview in Hanoi. "It shows international investors are more and more interested in Vietnam."
The central bank's support coincides with Dung's plans to open the economy.
Dung, 57, became prime minister in June and last week approved a $1 billion sale of government bonds, the largest ever. The Communist Party this year told three of the four biggest state banks to prepare for initial public offerings.
Vietnam this year ended a decade-long policy of "managed devaluation" that caused the dong to weaken 30 percent. The currency gained 0.7 percent between Nov. 22 and Feb. 21. It has since fallen 0.4 percent to 16,041.05 per dollar as regulators curbed borrowing for stock market investment.
Three-month, nondeliverable forward contracts trade at 16,111 to the dollar, data compiled by Bloomberg found. The prices take into account higher interest rates in Vietnam as well as the expectations among traders for dong movements.