Vietnam started with the extension of central planning and direct controls from the North to the South, but moved in the late 1980s to more market-oriented reforms, introduced slowly and discontinuously over three decades in the monetary and exchange rate policy areas as well as the wider economy. For many years monetary policy had multiple objectives and weak, though increasingly indirect, instruments, but by the end of the period there was talk of, but not yet commitment to, a move to inflation targeting and full exchange rate flexibility.


Targets and attainment



North Vietnam takes control of South Vietnam April 1975, formal merger of North and South July 1976, in economy suffering from wide-ranging disruption and destruction over decade of war, with per capita incomes well below mid-1960s levels, and attempting to integrate Northern centrally planned with Southern market economy; initially two currencies in circulation, not mutually convertible; in North exchange rate regularly adjusted in terms of basket; in South banks nationalised May 1975 and in process of incorporation into monobank (central bank of South which becomes branch of central bank in North), new currency September 1975 fixed to SDR at depreciated rate; 1977 specialist banks established on country-wide basis; efforts to integrate wage, credit, interest, exchange rate and pricing policies of two regions, but structural differences remain for many years; May 1978 introduction of new dong = uniform national currency, pegged to SDR but adjusted frequently, in place of previous Northern and Southern dongs, with various additional exchange rates for non-convertible and some convertible area transactions; credit expansion clearly subordinate to annual plan but control is imprecise, heavy emphasis on cash in circulation but control is weak, periodic adjustment of interest rates, some years of very high inflation; 1980 depreciation, with focus now more on USD than SDR, larger depreciation 1981; other liberalising measures from time to time but small and not always very effective; mid-1980s growing arrears on obligations to IMF; 1985 pricing reform plus currency reform plus large depreciation, poorly handled; 1987-8 start of restructuring of banking system; 1987 further large depreciation; 1988-9 major wide-ranging ‘doi moi’ reform programme initiated, including (a) move to two-tier banking system: central bank gives up commercial bank functions, former and two new state-owned banks become commercial banks, and central bank starts lending to banks and setting reserve requirements and liquidity ratios, (b) shift of emphasis of monetary management towards inflation control (via control of reserve money) with positive real interest rates, and (c) convertible exchange rates unified with large depreciation to close to parallel market rate, followed by smaller market-aligned appreciations, but separate (also depreciated) rates remain for non-convertible transactions

multiple direct controls MDC


exchange rate adjusted frequently to keep broadly in line with parallel rate, which largely reflects relative inflation rates; two-tier banking, central bank has range of direct monetary instruments, financial system expanding but still underdeveloped, and monetary growth still determined heavily by needs of government and state enterprises; 1990 end of aid from USSR and collapse of CMEA trade encourage further reform; 1991 basic forex market, increased Treasury bill issues with some secondary trades; 1992 interest rate structure rationalised; arrears to IMF cleared 1993; 1994 individual bank credit ceilings, interbank forex market; 1995 regular Treasury bill auctions, some easing of interest rate controls; 1998 Asian financial crisis leads to slowdown, with depreciations and tighter controls; increased difficulties in banking sector, ongoing reforms; dollarisation, present since 1970s, had declined from peak in 1991 but revives second half 1990s, dollarisation and ongoing monetisation complicate monetary management; 2000 base rate mechanism simplifies and eases interest rate controls; exchange rate flexibility varies over time; further interest rate liberalisation 2002; as of 2004 monetary policy objectives remain diverse and instruments partly direct and partly indirect, with discount and refinancing facilities forming corridor for OMO rate; 2006 after period of exchange rate stability some cautious forex liberalisation, trading band widened again 2008; recurring alternation of monetary loosening and tightening; as of 2013 monetary policy objectives remain diverse and instruments mixed, while monetary transmission is weak and subject to instrument conflict and distortions, and central bank communicates poorly and lacks independence; 2015 some increase in exchange rate flexibility: central rate devalued and trading band widened, plus more flexible mechanism for setting daily central rate; talk of move to inflation targeting, but preparations very slow and no clear commitment; statistical database gradually improved but remains weak

loosely structured discretion LSD

Selected IMF references: RED 1976 pp1-7, 23-4, 36-8; RED 1977 pp31-4; RED 1979 pp35-9, 47; SR 1979 pp10-11; SR 1980 p12; RED 1983 pp25, 30-2, 41; RED 1986 pp18-21 31; RED 1987 pp1-4, 35; RED 1988 pp3-4, 26-7, 44-5; RED 1989 pp1-9, 36-42, 56-8, 82-7; SR 1989 pp17-21; RED 1991 pp20-4, 32-3; SR 1992 pp4-6, 1314; RED 1994 pp27-30, 34, 41-2; BP 1995 p57; RED 1996 pp36-38, 46; RED 1996 Supplement pp13-19; SR 1996 p21; SI 1998 pp4-7; SR 1999 p7; SR 2000 p10; SR 2001 pp9, 16; SR 2003 pp17-18; SR 2004 pp11, 13; SR 2005 p8; SR 2006 pp12; SR 2009 pp11-12; SR 2010 pp5-13; SI 2013 pp2-8, 19-20; SR 2013 pp21, 23-5; SR 2016 p6; SR 2017 pp12-13.

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