Vietnamese Dong Devaluation: Securing the Future with a Weaker Currency?
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Case Code: ECON032 Case Length: 15 Pages Period: 2010 Pub Date: 2011 Teaching Note: Not Available |
Price: Rs.400 Organization : - Industry : - Countries : Vietnam Themes: Macro Economic Management, Currency Devaluation |
Abstract Case Intro 1 Excerpts
Excerpts
Currency Devaluations: Historical Evidences
Under a fixed exchange rate system10, devaluation connotes an official downward adjustment of a domestic currency relative to the price movement of gold or other major global currencies, especially the US Dollar. Under a floating exchange rate regime11, a government (more often with the consent of the respective central bank) reduces its currency’s value due to a variety of reasons. Sometimes, devaluation is forced on a country by international institutions, as happened in India in 1966 (Refer to Exhibit II for India’s currency devaluation)...
Dong Devaluation: A Solution to Vietnam's Macroeconomic Problems?
Vietnam's economy expanded rapidly between 2000 and 2007, with the GDP growing at an average of 7.5% a year. In 2007, it grew by 8.5%. Such an amazing economic growth coupled with reforms helped Vietnam attract US$15 billion of foreign investments. But Vietnam’s policy makers were not able to handle the massive inflow of foreign capital. Thus began the problem of inflation in the country. Then in late 2008 came the global financial crisis, which left the Vietnamese economy in tatters. Foreign direct investment dwindled and exports slumped, swelling Vietnam’s trade deficit and exposing its over-reliance on overseas markets....
Dong Devaluation - Will it Work?
Experts pointed out that history had shown that currency devaluation had most often yielded positive results, but it was not necessary that the results would be evident immediately after the devaluation. It might take months, or even a year, like in the case of Mexico which showed a trade surplus of US$7.4 billion in 1995, as exports amounted to US$80 billion and imports US$73 billion. In the five years between 1990 and 1994, Mexico’s trade balance was in surplus.3 The 1997 baht devaluation did not boost the value of Thailand’s exports instantly due to the Asian financial crisis...
Exhibits
Exhibit I: Dong Devaluation and Interest Rates Rise to Combat Trade Deficit and Inflation
Exhibit II: India’s Tryst with Devaluation
Exhibit III: Devaluation: The Mexican Saga
Exhibit IV: Thai Baht Devaluation and Scripting an Economic History
Exhibit V: The English Experience
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