D-Day for dong as government outlaws dollar
DAY-TO-DAY use of the United States dollar will be outlawed today in Vietnam in favour of the dong, sparking fears of a surging black market.
Foreign bankers were battling yesterday to calm nervous overseas investors fearful of losing dollar reserves and the smooth repatriation of profits.
Despite possible hiccups, the move is being seen as a vital step in the maturity of Vietnam's spartan monetary system.
Some investors are already stockpiling black-market dollars, should vital dong-to-dollar transactions prove difficult. There is no market for dong outside Vietnam.
'There has been a tremendous amount of confusion - and fear - all week, but now I think it should be pretty straight-forward,' one leading foreign banker said after talks with Vietnam's State Bank.
Prime Minister Vo Van Kiet announced an October 1 deadline to outlaw use of the greenback, but has left it up to the State Bank to implement.
The move is one of several geared to pulling in the estimated US$3 billion in gold, dollars and dong stuck outside the banking system in Vietnam after years of communism. Getting more money into the banks will allow more funds for loans and development.
Currently, less than 10 per cent of Vietnam's gross domestic product is understood to flow within the banking system.
Some 300 Vietnamese companies are thought to trade primarily in dollars, and dollar use has now become widespread across the country in shops and trade.
In essence, all domestic transactions must now be in dong, including rents, hotel bills and domestic contracts.
A vast array of official bank exchange counters will be set up in key shops, hotels and airports.
In practical terms, the dong is tricky to use, with huge bundles required as the highest denomination is the 50,000 dong note (about HK$32).
The dong currently trades at about 11,000 to $1, and is expected to strengthen slightly in the short-term as dollars are traded-in, but weaken underground as worried foreigners shore up dollar supplies.