Vietnam and Cambodia’s dollar aversion

It is not just China that wants its currency to gain strength against the US dollar. In Vietnam, the issue of currency devaluation affects everything because lack of confidence in the dong pushes investors out of cash into other assets such as gold and real estate. And with good reason: the 8.5% devaluation of the dong at the start of this year was a harsh blow to savers in the local currency. As Tom Tobin, chief executive of HSBC Vietnam, says: “Banks are offering over 14% on deposit rates, but that’s what you have to do to get people to hold dong. Why would you want to hold a currency when it can depreciate 9% on the spot?” The government has been cracking down on Vietnam’s ever-popular gold-trading floors since January this year, fearing that investors’ preference for the metal and for dollars is putting further pressure on the dong. There’s little evidence that the plan is working yet, though. After the February devaluation the dollar rate rose to D20,693, yet unofficial rates crept higher to almost D22,000.