cooperation in monetary and financial issues, particularly to deal with
the issues of multiple currencies within domestic economies.
The region’s biggest development bank made the statement in the latest study, which was published on October 15.
The study, Dealing with Multiple Currencies in Transitional
Economies: the Scope for Cooperation in Cambodia , Laos , and
Vietnam , is a pioneering work on the multiple-currency phenomenon with
important recommendations for promoting regional monetary and financial
cooperation.
In the three target countries, other
countries’ currencies, particulary the US dollar, are found in broad
use. The share of foreign currencies ranges from around 20 percent of
all currency in circulation in Vietnam , about 50 percent in Laos ,
and more than 90 percent in Cambodia .
In this
regard, the ADB Country Director for Vietnam , Ayumi Konishi,
recognised progress made by the country in de-dollarisation.
“Yet, authorities, especially the State Bank of Vietnam , are
fully aware that administrative measures alone cannot be effective”,
said the ADB residential chief.
He explained that
in order to de-dollarise the Vietnamese economy, it is essential to
enhance people’s confidence in Vietnamese dong through sustainable and
high economic growth, stabilisation of the foreign exchange rate,
reforms in monetary policies, and strengthening of the capacity of
financial institutions.
Jayant Menon, Principal
Economist in ADB’s Office of Regional Economic Integration, a co-editor
of the study, remarked “Dollarisation blunts the tools for macroeconomic
stabilisation, especially monetary and exchange rate policy, that a
country like Vietnam needs in order to tackle a variety of economic
and developmental challenges, such as rising inflation”.
He warned Vietnam , where the US dollar makes up 20 percent of the
total money circulation, for its partial dollarisation which may lead
to some limitations especially in deploying policies for macroeconomic
stabilisation.
Solutions such as official
dollarisation, compulsory de-dollarisation and mono currency are all
infeasible, said the ADB expert.
Experts
recommended three solutions, including the short-term solution which
highlights strengthening the momentum for depositing savings in the
Vietnamese dong instead of the US dollar or gold. They also urged banks
to encourage long-term saving deposits in the Vietnamese dong and reduce
sudden changes or any instability in the short-term saving deposit
interest rates.
Their recommendations for a
medium-term solution included a currency-bound mechanism and reserving
the right to mould or print currency.
For a
long-term solution, experts recommended the economy be prepared for the
de-dollarisation process, building financial institutions and speeding
up reforms in the State-owned enterprise sector for sustainable
development.
The other co-editor of the study,
Giovanni Capannelli, Principal Economist in the ADB Institute, urged
monetary authorities of Cambodia , Laos and Vietnam to share
information and experiences in order to find a solution to the
dollarisation issue.
“The three countries have a
lot to gain from closer cooperation, both among themselves and with the
rest of the members of the Association of Southeast Asian Nations”, said
the ADB expert.
ADB, based in Manila , is
dedicated to reducing poverty in Asia and the Pacific through
inclusive economic growth, environmentally sustainable growth, and
regional integration.
In 2009, it approved a total
of 16.1 billion USD in financing operations through loans, grants,
guarantees, a trade finance facilitation programme, equity investments,
and technical assistance projects.
Vietnam will host ADB’s 44 th annual meeting in Hanoi in May 2011./.
