ADB finds dollars dull SE Asian financial controls

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Vietnam has made progress in dealing with dollarization but more efforts are needed to enhance confidence in the local currency, the Asian Development Bank said in a statement last week.

The Manila-based bank just published a study about the economic impact of having multiple currencies circulate in Vietnam, Laos and Cambodia. In these countries, the bank found, foreign currencies are widely used, particularly the US dollar.

"The share of foreign currencies ranges from around 20 percent of all currency in circulation in Vietnam, about 50 percent in Lao PDR, and more than 90 percent in Cambodia," the bank said.

ADB said that, aside from certain benefits, the use of multiple currencies reduces economic authorities' control over monetary and exchange rate policies.

"Dollarization blunts the tools for macroeconomic stabilization, especially monetary and exchange rate policy, that a country like Vietnam needs in order to tackle a variety of economic and developmental challenges, such as rising inflation," said Jayant Menon, Principal Economist in ADB's Office of Regional Economic Integration.

"Vietnam has made good progress in de-dollarization," says Ayumi Konishi, ADB Country Director. "Yet, authorities, especially the State Bank of Vietnam, are fully aware that administrative measures alone cannot be effective"¦ it is essential to enhance people's confidence in Vietnamese dong through sustainable and high economic growth, stabilization of the foreign exchange rate, reforms in monetary policies, and strengthening of the capacity of financial institutions."

The study also suggested that "sharing information and experiences would help the monetary authorities of Cambodia, Lao PDR, and Vietnam to find a solution to the dollarization issue." The three countries have a lot to gain from closer cooperation, it added.

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