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20% of cash transactions in Vietnam are in US dollars
The US dollar accounts for 20 percent of cash transactions Vietnam, 50 percent in Laos, and 90 percent in Cambodia.
These figures are from a report entitled Dealing with Multiple Currencies in Transitional Economies published by the Asian Development Bank (ADB) in Hanoi on October 15.
Ayumi Konishi, Vietnam Country Director of ADB, said that dealing with dollarisation and multiple currencies is the main task of the national economic policy and Vietnam has shown good improvement in dealing with the problem.
He noted, however, that the administrative solutions of management agencies, particularly the State Bank of Vietnam (SVB), are not enough to reduce the dollarisation of the economy. He said the key issue is how to create public trust in the domestic currency through high and stable economic growth, stablising exchange rates, reforming monetary policy, and improving the capacity of financial institutions.
According to Konishi, dollarisation can be decreased through stabilising the macro-economy, and strengthening the financial and banking system, the business market, and business administration. These goals can be achieved if government and administrative offices succeeded in making their macro-management more transparent.
The ADB report revaluates the costs and benefits of dollarisation. One benefit is that it can help the government better understand its own monetary policy. Specifically, the government should not cover its deficits by issuing more money. Instead, it should raise taxes. Another benefit is that dollarisation will keep the exchange rates fixed thus stabilising prices.
But, using multiple currencies will reduce the control of the economic administrative agencies over the exchange rate and monetary policies. This also weakens the role of the central banks as the “final borrowers” in the event of a banking crisis.
Jayant Menon, an economist from ADB Office for Regional Economic Integration, said that dollarisation will lessen the effectiveness of macro-economic management methods, especially monetary and exchange rate policies that countries like Vietnam should implement to solve economic challenges like high inflation. Also, it takes longer and is more difficult for countries with dollarisation to adjust to external shocks.
Giovanni Capannelli, ADB Senior Economist, added that sharing information and experience will help the monetary administrative agencies in Laos, Cambodia, and Vietnam to iron out snags of dollarisation. The three countries will gain great benefits if they intensify their cooperation and extend their relations to other ASEAN members.
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