After three devaluations of the country’s currency for the past two years and another in February of this year, the State Bank of Vietnam just cut its currency’s reference rate again by 2.1% against the Dollar today. For the country’s central bank, the move was necessary to control trade deficit.

From the $742 million trade deficit in June of this year, the figures quickly ballooned to $980 million in July. Based on the late July figures, Vietnam’s trade deficit in the first seven months of 2010 had widened to $7.44 billion. Such statistics is an alarming doubled gap from the same period last year.

The trading band of +/- 3 percent remains unchanged, however, and the official rate for the dollar is set at VND18,932, versus the previous rate of VND18,544 on Tuesday. Commercial banks will set their own rates. The adjustment brought the dong closer to its actual value, at the same time supporting exports and putting a brake on the country’s imports. Trends also show that since the last devaluation in February and a move by the central bank to free lending rates from a cap, the unofficial exchange rate had strengthened and remained within the trading band until the renewed pressure in July when the currency has been widely reported by state media as the result of increased demand for dollars to re-pay a wave of loans taken out in greenbacks earlier of 2010.

The devaluation is a smart effort by the central bank to prepare for what might translate in the coming months when there could be more pressure on the rate. The government itself emphasized that they will get a grip on the trade deficit and keep it from exceeding 20% of the country's total export revenues this year. This year's exports are said to rise by 6%.

Inflation is seen to be mild this year and financial institutions categorize the adjustments to the currency as being consistent to their forecasts. Along with the positive aims for devaluating the Dong, the exchange rate is more likely to stabilize in the coming months. With that, the need for implementing more adjustments in the future would hopefully diminish.