Exchange Rate Stability in Vietnam: Navigating the Conflicting Policy Demands

Vietnam is under mounting pressure to maintain the value of its currency, the dong (VND), which, by the end of October, had depreciated by 2.9 per cent compared to the start of this year. The Governor of the State Bank of Vietnam, the country’s central bank, said that if devaluation pressures intensify, the State Bank would consider buffering such trends by maintaining steady interest rates. That move could stabilise the exchange rate by mitigating investment outflows, but it might negatively affect the ambitious economic growth targets by upsetting expected lower interest rates. It is critical that Vietnam manages these dilemmas and trade-offs with clarity and prudence. 

The exchange rate pressures are evidenced by the widening spread between the official and black market USD/VND rates, which reached nearly 1,500 dong (approximately 5 per cent) by the end of October 2025 — the highest in 12 years. Research by Viet Dragon Securities Corporation (VDSC) attributes this unprecedented divergence primarily to a USD supply shortage in both official and unofficial channels. Buyers bid for scarce USD by offering more VND, which lowers the VND’s value. Since August, the SBV has been forced to sell roughly US$4.4 billion in forward foreign currency to mitigate VND depreciation and hence stabilise the exchange rate. 

Persistent devaluation pressure on the VND arises from several interconnected factors. Chief among them is a sudden surge in unofficial USD demand, which appears linked to the domestic gold market. The substantial and growing gap between local and global gold prices — up to 19 million dong per gold tael (around 13 per cent) — creates a clear arbitrage opportunity: importers can acquire gold through unofficial channels and sell it at a premium in Vietnam, thereby driving USD demand in the black market as they need USD to pay for the imported gold. This, in turn, triggers sharp fluctuations in the VND/USD rate — particularly in the black market — and undermines overall market confidence. 

Second, the US Federal Reserve (Fed)’s “higher-for-longer” interest rate policy since mid-2024 has generated an unfavourable differential between the returns on USD- and VND-denominated assets. While market participants anticipated a Fed interest rate cut in the first quarter of 2025, the actual cut only occurred in September. As a result, at certain times in 2025, the interest rate gap between VND and USD became negative when the VND rates fell below the USD rates. This gap incentivises capital outflows from VND-denominated assets and encourages a shift toward holding foreign currencies and investing in USD-denominated instruments. 

Third, rising capital outflow pressure has further exacerbated exchange rate volatility. Foreign investor caution, intensified by the US announcement of reciprocal tariffs in April 2025, has driven significant withdrawals. These tariffs, combined with a global trade slowdown, have prompted major conglomerates to delay investment disbursements. As a result, FDI growth prospects have dimmed, contributing to weaker USD inflows during the first three quarters of 2025. In the stock market, foreign investors recorded net sales of approximately VND107 trillion (US$3.9 billion) from January to September 2025 — a figure exceeding the full-year total for 2024. The outflows of such funds from Vietnam also put pressure on the VND’s devaluation.

The government must abandon its fixation on growth at any cost. Vietnamese leaders should reaffirm that growth is a means, not the end, and the true objective is socio-economic stability.

To maintain the stable exchange rate and defend the value of the Vietnamese dong, the SBV has intervened repeatedly to mitigate market stress since 2024. Estimates indicate that national foreign exchange reserves have declined to around US$81 billion, covering just 2.3 months of imports — the lowest level in years. 

The SBV faces a difficult task of navigating between two conflicting policy demands. On the one hand, it needs to support the ambitious economic growth of over 8 per cent, which requires the central bank to maintain an easing monetary policy, which in turn requires achieving higher credit growth and lowering interest rates. On the other hand, the government seeks to maintain a stable exchange rate, which is an important component of macroeconomic stability, a goal that Vietnamese leaders also emphasise. And foreign investors also favour a less volatile Vietnamese dong. 

Looking forward, Vietnam’s ability to stabilise the exchange rate depends on three critical factors. 

First, a favourable interest-rate differential between USD and VND. Although the outlook for the Fed’s rate cuts in 2025 has grown uncertain, analyst consensus still projects further easing, with the policy rate potentially falling to 3.0–3.25 per cent by late 2026. This path remains vital, as the domestic market anticipates continued accommodative monetary policy in Vietnam — some analysts are still expecting possible rate cuts in the fourth quarter, while others expect a stable but still easing monetary conditions — to meet the ambitious GDP growth target of at least 8 per cent. Fed easing would alleviate persistent pressure from an unfavourable USD–VND rate differential, thereby supporting exchange rate stability. 

Second, the prioritisation of stability in SBV’s policy. As explained above, the SBV faces a serious dilemma between prioritising exchange rate stability and easing monetary policy to support higher growth. Given the stated imperative for a growth rate exceeding 8 per cent, the SBV is politically compelled to maintain an expansionary stance. However, policymakers must recognise that monetary easing carries a cost: driving down interest rates and increasing credit expansion elevates inflation expectations, which could compound the devaluation pressure on the exchange rate. 

Third, a hoped-for recovery in foreign capital inflows. A rebound remains possible. Vietnam’s trade framework commitments signed with US President Donald Trump on the sidelines of the ASEAN Summit in October, coupled with the US–China trade truce, are expected to restore confidence among FDI firms, prompting resumed disbursements and bolstering much-needed USD supply. 

Although certain factors influencing exchange rate stability are external, the critical element of monetary policy remains largely within the government’s domestic ambit. The government must abandon its fixation on growth at any cost. Vietnamese leaders should reaffirm that growth is a means, not the end, and the true objective is socio-economic stability. Moreover, the data indicate the economy is resilient and the negative effect of further stimulus on inflation expectations and exchange rate volatility may outweigh the benefits. The third quarter’s robust 8.2 per cent GDP growth offers a timely opportunity to ease pressure on the SBV for aggressive monetary loosening. This may create a more sustainable foundation for exchange rate stability, which, in turn, may accelerate the return of international capital to Vietnam. 

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