Vietnam Tightens Foreign Currency Controls to Limit Use of U.S. Dollars

In a bid to curb widespread use of U.S. dollar bills, the Vietnamese government has served notice that most foreign currency will have to be channeled through banks beginning Oct. 1.

The aim of the measure decided by Prime Minister Vo Van Kiet is to control an estimated $600 million now circulating in dollar notes and to increase use of the Vietnamese dong, a senior government economist said.

“The intention is not to hurt the people but to restore order,” the economist, who asked to remain anonymous, told Reuters. “For the government, it’s a very necessary measure. The dollarization of Vietnam’s economy is very unusual for any country.”

About 70% of the hard currency turnover in Vietnam was by state companies, he said.

“Now people are keeping money under the mattress--we need to get it into the banks,” he said.

Some estimates say as much as $2 billion is in circulation in communist Vietnam, which started diversifying trade and seeking foreign investment in the late 1980s.

The measures require Vietnamese organizations to channel the hard currency they earn through banks rather than holding it in cash, and for most cash payments to be made in dong.

The economist said the decision would have no effect on foreigners and that he did not think it would affect the exchange rate.

Kiet’s decision, reported by the official Vietnam News Agency, means that all currency proceeds from export transactions and services provided to foreigners will have to be deposited in banks licensed to trade in foreign currencies.