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Vietnam Inflation
The ill-conceived monetary-reform plan introduced in late
1985 set in motion unprecedented inflation. Hanoi replaced the
old D10 note with a new D1 note and devalued the dong's foreign
exchange rate from D1.20 to US$1 to D15 to US$1. A leak about the
planned currency change and the unavailability of new notes of
small denominations, however, defeated the goal of contracting
the money supply by eliminating illegal cash holdings. As a
result, inflation increased from about 50 percent in late 1985 to
700 percent by September 1986.
In implementing the reform, the government deprived both
private and state-run enterprises of large amounts of cash they
held for operating expenses. A Vietnamese economist estimated
that half the cash in circulation was held by public enterprises
for the purpose of expanding production. Most enterprises held
their earnings in cash because the banking system encouraged only
deposits and not withdrawals.
To curb inflation, the government directed its efforts at
lowering prices by imposing state regulations. Price subsidies
were reintroduced, and, in the face of widespread shortages and
hoarding, the rationing of essential goods also was reinstituted.
Data as of December 1987
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