Vietnam needs to reduce US dollar transactions in its economy and restore confidence in the dong as faster inflation deters use of the local currency, said Ayumi Konishi, the Asian Development Bank's Vietnam director.
Dollars make up about 20 percent of money used in Vietnam, Konishi told reporters at a conference in Hanoi Wednesday. With inflation a concern, "people really didn't feel comfortable to hold onto their assets in dong, they rushed to the gold market or the money changers, got dollars and put them under the pillow," he said.
The depletion of Vietnam's foreign-exchange reserves is also prompting locals to push down the dong, Konishi said.
Foreign reserves of Vietnam were estimated at US$12.4 billion at the end of 2010, covering about 1.9 months of imports, the ADB said in a report released on Wednesday. The World Bank in March 21 gave the same figures and said that fell from $14.2 billion at the end of 2009 and $23 billion at the end of 2008.
The Southeast Asian nation has been struggling to combat inflation at a 25-month high. Prime Minister Nguyen Tan Dung in February approved a resolution asking ministries to narrow a budget deficit to less than 5 percent of gross domestic product and cut credit growth to less than 20 percent from 23 percent. He also lowered the money-supply growth target to about 15 percent to 16 percent from as much as 24 percent.
"Even with a successful implementation of the resolution, it will take time for the inflation numbers to come down," Konishi said. "Inflation is anticipated to remain high through 2011 averaging 13.3 percent before moderating to an average 6.8 percent in 2012."
Consumer prices increased 13.89 percent in March from a year earlier, the fastest pace since February 2009, the statistics office said March 24. Prices were fanned by more expensive energy and higher import costs caused by devaluations of the dong. The government targeted curbing inflation at no more than 7 percent this year.
"I do think that as a medium-term goal for Vietnam, to really eliminate, reduce the dollarization in its economy is certainly a necessary step," Konishi said.