December 11th 2014.
The Vietnamese Dong (VND) has been on an inflationary trend since 1996. On June 19, 2014, the State Bank of Vietnam (SBV) devalued the Dong by 1% against the USD. It went from a 1 : 21,036 ratio to 1 : 21246. The SBV Governor stated that this inflationary move was necessary but had little impact on the overall economy. Its purpose was to make exports more profitable.
Vietnam’s exchange rate regime is officially described as a managed floating regime and yet has some characteristics of a crawling peg, with a steady pace of depreciation against the U.S. Dollar. The objectives of the SBV are inflationary, not deflationary as some people incorrectly believe that the Dong will dramatically improve in value against the U.S. Dollar in the near future.
On December 9th 2014 the SBV sold 1.1 Billion USD to stabilize its presence in the Forex market. As of this date, the commercial bank rate is up (inflated again) to 1:21,400 against the USD.
The only way that the SBV could reverse this trend would be if there were some economic imperative to add value to the Dong and in that case, the SBV would need to de-dollarize its economy. This might happen as large markets are dumping the U.S. Dollar, but it does not appear to be consistent with the 18 year inflationary trend at this time.
Changes to the exchange rate appear unlikely. Just because a country’s currency is thousands of times less in value than the Dollar, does not mean that the currency will be dramatically revalued against the Dollar. In the example of Vietnam, this country stands to benefit greatly from exports, and a deflationary trend against the Dollar would adversely affect these benefits (job creation, rise of the middle class, etc.)
Instead of revaluing the Dong, the SBV intends to reduce inflation expectations by measures that include allowing for greater capital outflows and increase its sterilisation efforts. It may also increase domestic interest rates to further control inflation. Going forward, the most likely path of increasing flexibility in currency movements will be along a more administrative path rather than to formally change the currency regime. The may be accomplished by the government relaxing documentation requirements in foreign exchange transactions and lengthening the tenor of forward foreign exchange transactions, which are currently limited to one year an allowing more exchange rate instruments available in the market.
One more note, there is no “VNN” currency code, the Dong is and will be for a very long time, coded as “VND”. The International Standards Organization is the only recognized authority for these changes, http://www.iso.org/iso/home/standards/currency_codes.htm
Let me also make another note about the Zimbabwe Dollar (ZWL). This currency was officially abandoned by the government in 2009 and the use of a list of foreign currencies was legalized. The people in that country have begun using many other currencies and eighty percent of the population has recently begun using Bitcoin (or a variation of it) on its mobile phones. Most of these people do not use a bank account, so there is a natural trend to use cash and especially Bitcoin (or other alternative cryptographic currencies).
Today, all transactions are in foreign currencies, mainly the U.S. dollar and the South African Rand. But Zimbabwe’s worthless bills are valuable as collectibles (numismatics), if you are an expert in that field. Zimbabwe is no where near any economic situation to improve the value of its currency, especially when it’s official currency was abandoned by the government. The current government of Zimbabwe said that the Zimbabwean currency should only be reintroduced if the industrial output was 60% or more of its capacity, compared to the April 2009 average of 20%. On 29 January 2014 the Zimbabwe central bank announced that the US dollar, South African rand, Botswana pula, Pound sterling, Euro, Australian dollar, Chinese yuan (renminbi), Indian rupee and Japanese yen would all be accepted as legal currency within the country. Again, just because you can buy millions of this currency with only a few Dollars, does not mean it’s a good investment or buy.
Reuters.com; June 18, 2014, “Vietnam to lower dong by 1 pct against dollar from Thursday”
Viet Nam News, vietnamnews.vn; July 21, 2014, “Exchange rate hike pays modest gains”
http://www.anz.com; December 9th 2014, “Examining the Vietnamese Dong”
Vietnamnet.vn; December 9th 2014, SBV sells 1.1 billion USD to stabilise forex market
Wall Street Journal, May 11th 2011, “The Highest-Denominated Bill Ever Issued Gives Value to Worthless Zimbabwe Currency:
CNN iReport, April 16th 2013, “Zimbabwe Names Bitcoin National Currency”
BBC News, April, 2009, “Zimbabwe dollar ‘not back soon’ “
CCTV Africa, August 2013, Return of the Zimbabwe dollar