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US dollar transaction at Quoc Trinh Gold Shop in Ha Noi. About 20 per cent of all currencies in circulation in Viet Nam are foreign. — VNS Photo Truong Vi |
Regional co-operation on monetary and financial issues to exploit economies of scale, introduce good practices and facilitate the adoption of common regulatory standards will help the country tackle economic and developmental challenges posed in the transitional period, the book Dealing with Multiple Currencies in Transitional Economies: The Scope for Co-operation in Cambodia, the Lao People's Democratic Republic, and Viet Nam, stated.
"Dealing with dollarisation and multiple currencies is ultimately an issue of national economic policy, and in this regard, Viet Nam has made good progress in de-dollarisation," Ayumi Konishi, ADB Viet Nam country director said at the book's launch in Ha Noi last Friday.
"Yet, authorities, especially the State Bank of Viet Nam, are fully aware that administrative measures alone will not be effective."
In order to de-dollarise the Vietnamese economy, it is essential to enhance people's confidence in the Vietnamese dong through sustainable and high economic growth, stabilisation of the foreign exchange rate, reforms in monetary policies, and by strengthening the capacity of financial institutions, the ADB representative said.
The study shows other countries' currencies, particularly the US dollar, are in wide use in the three Indochinese countries – Laos, Cambodia and Viet Nam.
In Viet Nam, about 20 per cent of all currencies in circulation are foreign; in Laos the figure is 50 per cent; while in Cambodia it is 90 per cent.
The study highlighted the costs and benefits of dollarisation. On the plus side, dollarisation can impose discipline on governments since they cannot easily finance budget shortfalls by printing money. In addition, if dollarisation leads to a near fixed exchange rate, prices can be less volatile.
However, the use of multiple currencies reduces the control of economic authorities over monetary and exchange rate policies. It also restricts the power of central banks to act as "the lender of last resort" in the event of a banking crisis, the study said.
"Dollarisation blunts the tools for macroeconomic stabilisation, especially monetary and exchange rate policy, that a country like Viet Nam needs in order to tackle a variety of economic and developmental challenges, such as rising inflation," the book's co-editor Jayant Menon, principal economist at ADB's Office of Regional Economic Integration, said.
Meanwhile, sharing information and experiences would help the monetary authorities of Viet Nam, Lao and Cambodia find a solution to the dollarisation issue, said co-editor Giovanni Capannelli, principal economist at the ADB. — VNS
