Problems Remain as Vietnam Devaluates Dong

While a downward facing dong will support Vietnam's currency system, the government still has more work to do as it faces inflation and a big trade deficit which could result in further devaluations and sharply higher interests, reveals the Wall Street Journal.

 

The Journal reports that one U.S. dollar today will buy 18,544 dong, compared with 17,941 dong earlier in the week. The country also capped the interest rate on some U.S.-dollar bank accounts at 1% in order to prevent businesses and state enterprises from hoarding dollars, notes the Journal.

 

It is uncertain whether these efforts will be sufficient to solve the imbalances in Vietnam's economy, says the Journal, adding that each new devaluation worsens the dollar-hoarding problem by lowering business and consumer confidence.

 

According to the Journal, Vietnam's problems are unlikely to affect neighboring countries such as China, Thailand and Indonesia, which have strong foreign exchange reserves and trade surpluses. Meanwhile, other countries in the region are facing pressure for their currencies to rise, rather than weaken.
 

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