Revisiting Exchange Rate Determination In Vietnam: Does Renewable Energy Matter?

In the last decade, there has been a tremendous growth in the trend toward environmental sustainability with the shift to renewable energy sources. Nevertheless, the fundamental question is whether using renewable energy could spur economic growth in general and Vietnam exchange rate in particular. This study aims to examine a number of determinants of exchange rate in Vietnam, with the emphasis on renewable energy. To investigate the issue, this study looks into six widely accepted determinants of exchange rate: Income, Money supply, Total reserves, Inflation rate, Brent crude oil price and Interest rate, and an addition determinant - Renewable energy consumption percentage. By employing unit root test, I attempt to illuminate the effect of all determinants on the rate of exchange, in either positive or negative direction. The estimated results reveal that in the short term, the use of energy from renewable sources in Vietnam has a significant and positive effect on the rate of currency exchange. In other words, a growth in the use of renewable energy in Vietnam will significantly cause the Vietnam’s exchange rate to depreciate, which may result in a surge in Vietnam’s exports and GDP growth. Therefore, it is recommended that Vietnam should encourage the transition to exploitation and utilization of renewable energy. This action will also promote a zero-carbon society in the near future. Research purpose: This study aims to examine a number of determinants of exchange rate in Vietnam, with the emphasis on renewable energy. Research motivation: While there have been several studies examining exchange rate in Vietnam, none of them has mentioned the role of renewable energy – an increasingly important factor in our daily life. This study is aimed at verifying whether renewable energy is important in determining exchange rate in Vietnam. Research design, approach, and method: This paper employs a quantitative approach in dealing with the topic. Specifically, this study employs time series method (unit root test, robust least squares regression) to examine important facotrs in determining the exchange rate in Vietnam. The period under investigation ranges from 1990 to 2022. Main findings. Empirical results confirm that renewable energy plays a significant and increasing impact on the exchange rate. Other significant factors include income, money supply and oil price (which have similar effects) and foreign exchange reserves and lending interest rate (which have negative effects). Practical/managerial implications. The significant and positive impact of renewable energy on exchange rate implies that higher energy consumption can lead to exchange rate depreciation which in turn, may prove beneficial to exports and ultimately economic growth. Therefore, renewable energy production and consumption should be encouraged to achieve both environmental and economic objectives.