Vietnam Table of Contents
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