Vietnamese Dong Devaluation: Securing the Future with a Weaker Currency?

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Case Details:

Case Code : ECON032
Case Length : 15 Pages
Period : 2010
Pub. Date : 2011
Teaching Note : Available
Organization : -
Industry : -
Countries : Vietnam

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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“Developing countries have often resorted to devaluations to reduce large external imbalances, correct perceived "overvaluations" of the real exchange rate, increase international competitiveness, and promote export growth.” ¹

- Carmen M. Reinhart, Department of Economics, University of Maryland, in 1994.

Introduction

Since 2008, Vietnam had been resorting to devaluing its currency, the Dong (VND), in a bid to arrest the growth of interest rates and boost exports and thus push economic growth. The dong reached a three-year high of VND15,815/US$² at the end of March 2008. On June 11 2008, to contain double-digit inflation and improve the worsening balance of payments³ position, the dong was devalued to VND16,461/US$ and was further devalued to VND16,989/US$ on December 25, 2008. On November 25, 2009, the State Bank of Vietnam⁴ (SBV) undertook its third devaluation since 2008 and devalued the dong by 5% from VND17,034 to VND17,967 per US$⁵...

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1] “Importance of Currency Devaluation,” http://mpra.ub.uni-muenchen.de, November 1994
2] “Vietnam: A Devaluation of the Dong?” www.riskwatchdog.com, December 9, 2008.
3] “TIMELINE-Major Moves in Vietnam’s Currency Policy,” www.forbes.com, November 25, 2009.
4] The State Bank of Vietnam is the central bank of Vietnam and formulates monetary policies, supervises financial stability of domestic financial institutions; and advises government on economic and monetary policies.
5] Chris Oliver, “Vietnam Shares Retreat in Wake of Rate Hike, Dong Devaluation,” www.marketwatch.com, November 26, 2009.

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