The relationship between export, import and exchange rate in Vietnam

Market Information
icon date25/07/2023

Import-export and exchange rate in Vietnam have a close relationship and interact with each other. Import-export activities arise the relationship of supply and demand of foreign currencies, causing fluctuations in exchange rates.

Overview of Vietnam’s import and export activities
According to statistics of the General Department of Vietnam Customs, the rate of import and export in Vietnam in 2021 will reach 444 billion, an increase of 22.38% compared to 2020, accounting for 67.3% of Vietnam’s total import and export turnover with the world.

In 2021, Vietnam’s import-export rate to the markets of Asian and African countries will reach 165.9 billion USD, an increase of 14.62% compared to 2020, accounting for 50.2% of Vietnam’s total export turnover to the world.

In which, the groups with the largest export turnover include phones and electronic components estimated at 32.29 billion USD, followed by computers and electronic products at 27.32 billion USD; machinery, equipment, tools and spare parts is estimated at 13 billion USD, textiles is estimated at 10.6 billion USD.

The major import and export markets of Vietnam are: China, Korea, Japan and ASEAN… thereby helping our country maintain a fast growth rate, contributing to the positive growth of Vietnam’s import and export.

According to the Ministry of Industry and Trade, by the end of November 2021, Vietnam’s import-export rate will reach 602 billion USD, up 22.8% over the same period last year.

At the same time, the restructuring of exports to other countries is also increasing, especially the processing industry, which is a group of goods with a fast growth rate in the structure of export goods. It is also a decisive factor to achieve a breakthrough in export turnover as well as a surplus trade balance.

Overview of exchange rates in Vietnam
The exchange rate in Vietnam is understood as a measure of two currencies, the exchange rate reflects the value of 1 unit of one currency when exchanged for another currency.

An exchange rate in Vietnam is the price at a time when the currency of one country or region can be converted to the currency of another country or region.
Accordingly, the exchange rate is calculated by the number of local currency units per foreign currency unit. Then, if the exchange rate decreases, the domestic currency will appreciate and the foreign currency will depreciate, whereas if the exchange rate increases, the domestic currency will decrease and the foreign currency will appreciate.

The Bank of Vietnam uses exchange rate tools to adjust macro indicators such as trade balance, import and export, inflation, gold price stability, market interest rate stability, etc.

In market transactions, foreign exchange and foreign trade, USD is the foreign currency accounting for the largest proportion and is used by Vietnamese banks as the central foreign currency in exchange rate policy management and administration.

However, the exchange rate in Vietnam here is the exchange rate between USD and VND. At the same time, it is also the average annual foreign currency rate exchanged on the market of commercial banks, based on the reference to the average annual central exchange rate announced by the State bank.

The relationship between export, import and exchange rate in Vietnam
The relationship between export, import and exchange rate in Vietnam is shown through:

Firstly, import and export activities have brought in an abundant source of Vietnamese foreign currency, reducing the exchange rate. Because when the exchange rate is low, the value of the local currency will increase and at the same time make the price of Vietnamese goods attractive.

However, when the exchange rate is high, it means that the value of the local currency is low, which will make the price of Vietnamese goods abroad lower and cheaper than the goods of other countries, increasing competitiveness and quickly consuming goods.

Therefore, for this reason, many countries have devalued their domestic currencies to promote export activities. However, this devaluation has led to many consequences, so governments cannot easily devalue the domestic currency.

Secondly, the main activity of import is the spending of foreign currency abroad to buy goods and services at home, when increasing imports will increase the demand for foreign currency, thus having the effect of increasing the exchange rate.

When the exchange rate is high, it makes the price of domestic imported goods and services more expensive than domestic goods, reducing competition, limiting consumption, thereby limiting the development of import activities, and creating conditions to promote domestic production.
In contrast, when the exchange rate is low, imported goods are sold at a cheaper price than domestic goods, increasing competitiveness, benefiting importers, but limiting the development of domestic production.

Therefore, governments often use the policy of raising the exchange rate, i.e. devaluation of the local currency to limit imports in order to encourage the development of domestic production.Through the article about the relationship between export, import and exchange rate in Vietnam, surely readers can equip themselves with many useful documents when importing and exporting goods to big countries.