Country Report Vietnam April 2011

Economic policy: A crackdown on black-market trade in US dollars has begun

The government is trying to confront the lack of confidence many Vietnamese have in their country's economy. Much of that distrust is expressed through the black market for US dollars as well as in the gold market. It is not unusual for US dollars that are traded in the black market to fetch a 10% premium over official exchange rates, and plenty of people opt to buy US dollars even at these rates to preserve the value of their savings. In recent weeks, however, the authorities have begun to crack down on the unofficial trade in US dollars by enforcing long-standing but frequently ignored laws prohibiting the use of US dollars for everyday business. The government is also attempting to shut down the black market, and it began by arresting four people in Hanoi for attempting to exchange US$400,000 for dong on the unofficial market. Now many of the gold shops in Hanoi's old quarter, the centre of the illicit dollar trade, are saying they no longer trade foreign currencies. The idea behind the crackdown is that by shutting down the informal market, officials are reducing the number of ways in which Vietnamese can speculate against the local currency, forcing them to come to terms with the dong's weakness and potentially stabilise its value after a series of devaluations. The move also increases the amount of the local currency in bank deposits, which could also serve to help to firm up the financial sector.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
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