ADB: Vietnam has made a good progress in de-dollarisation

Dealing with dollarisation and multiple currencies is ultimately an issue of national economic policy, and in this regard, Vietnam has made good progress in de-dollarisation, has said Ayumi Konishi, ADB Country Director for Vietnam.

“Yet, authorities, especially the State Bank of Vietnam, are fully aware that administrative measures alone cannot 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, stabilising the foreign exchange rate, reforming monetary policies, and strengthening the capacity of financial institutions,” he added.

In Vietnam, Laos and Cambodia, foreign currencies, particularly the US dollar, are widely used. The share of foreign currencies in circulation ranges from around 20 per cent in Vietnam, 50 per cent in Lao PDR, and more than 90 per cent in Cambodia.

The study, ‘Dealing with Multiple Currencies in Transitional Economies: The Scope for Co-operation in Cambodia, Laos, and Vietnam’ published by the ADB on October 15, shows that 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, making them “the lender of last resort” in the event of a banking crisis.

'Dollarisation blunts the tools for macro-economic stabilisation, especially monetary and exchange rate policies, that a country like Vietnam needs in order to tackle a variety of economic and developmental challenges such as rising inflation. Adjusting to external shocks can also be more prolonged and painful in the presence of even partial dollarisation,' said a co-editor of the study, Mr. Jayant Menon, Principal Economist of the ADB's Office of Regional Economic Integration.

Giovanni Capannelli, Principal Economist at the ADB Institute added, 'Sharing information and experiences will help the monetary authorities of Cambodia, Laos, and Vietnam find solutions to the dollarisation issue. The three countries have a lot to gain from closer co-operation, both among themselves and with the rest of the ASEAN member countries.”