The State Bank of Vietnam (SBV) is responsible for regulating the exchange rate of the dong (VND), and ties its exchange rate to the US dollar with an allowed fluctuation of +/- 1%. In January of this year, the SBV announced a .03% increase to the dong. The devaluation was the latest in a series meant to insulate the VND against larger market fluctuations.
The Central Bank is adopting a market-based approach in setting the mid-point rate against the U.S. dollar, rather than its past practice of fixing an exchange rate for long periods. The VND/USD ratio will be calculated daily, but the trading band of 3% plus or minus will remain in effect.
These adjustments to the dong reflect the pressure currently experienced by Asian markets as a whole.
Vietnam recorded a debt to GDP of 50.50% in 2014, as reported by the State Bank of Vietnam.
The S&P currently rates Vietnam’s credit at BB-. Moody's lists the country’s debt rating at B1. Fitch's credit rating for Vietnam stands at BB-.
Inflation has been largely kept in check by low commodities costs – with the country enjoying near historic lows in inflation rates. Though analysts expect average inflation of 2.6% in 2016, this is still lower than previous forecasts.
Although many Asian markets have seen difficulties in 2015, Vietnam has enjoyed stable growth over the past year owing to gains in industrial production. This strong uptrend is expected to continue through 2016, thanks to government focus on improving State-controlled enterprises in an effort to bolster the business environment there. Analysts expect to see similar percentage gains, about 6.7%, to those of the past year.
Though the agriculture sector eased over previous years, the services and industry sectors both showed improvement. Most notably, the industry sector experienced a considerable expansion of 9.6%. GDP continues to make gains over previous years.
Government and Trade
The controlling entity in Vietnam is the Communist Party of Vietnam. In mid January, the party opened the National Congress for the selection of leadership and the establishment of the economic plan over the next five years. Analysts do not anticipate significant changes to the party, which should result in continued economic momentum.
- Vietnamese Dong (VND)
- Phonetic Spelling
The origin of the word đồng stems from the Vietnamese term đồng tiền (which translates to “money”) and is a cognate of the Chinese word tóng qián, which refers to the Chinese bronze coins once used as currency during the dynastic periods of China and Vietnam.
The Dong traces its history back to pre-united Vietnam. It originated in 1946 when it was introduced as the currency to replace the then used French Indochinese Piastre, by the Viet Minh government (which would ultimately become the government of North Vietnam). In 1953, dually denominated notes in piastres and dong were issued by the State of Vietnam – later becoming South Vietnam in 1954. Later, when a reunified Vietnam was established, the dong was also unified as the national currency, on May 3rd, 1978.
In 1978, aluminum coins (dated 1976), were introduced in denominations of 1, 2, and 5 hào and 1 đồng. The coins bear the state crest on one side and the denomination on the reverse side. Due to chronic inflation, these coins lost all their value, and no coins circulated for many years after this series. However, commemorative coins in copper, brass, copper-nickel, silver and gold have been issued since 1986, but none of these were ever used in circulation. The State Bank of Vietnam resumed issuing coins in 2003. The new coins, minted by the Mint of Finland, were in denominations of 200, 500, 1,000, 2,000, and 5,000 đồng in either nickel clad steel or brass clad steel. Since the launch of the 2003 coin series, the State Bank has had some difficulties with making the acceptance of coins universal, even despite the partial discontinuation of smaller notes, but they are both relevant and in circulation today.
In 1978, the State Bank of Vietnam introduced notes in denominations of 5 hào, 1, 5, 10, 20, and 50 đồng, all dated 1976. In 1980, 2 and 10 đồng notes were added, followed by 30 and 100 đồng notes in 1981. These notes were discontinued in 1985 as they gradually lost value due to inflation and economic instability.
Then in 1985, notes were introduced in denominations of 5 hào, 1, 2, 5, 10, 20, 30, 50, 100, and 500 đồng. As inflation became endemic, these first banknotes were followed by 200, 1,000, 2,000, and 5,000 đồng notes in 1987, and by 10,000 and 50,000 đồng notes in 1990, Between 1991 and 2006, a 20,000 đồng note, a 100,000 đồng note, a 500,000 đồng note and a 200,000 đồng note were also added.
It should be noted that banknotes with denominations of 5,000 đồng and under have been discontinued from production and have been progressively withdrawn from circulation.