Viet Nam has two currency areas corresponding to the former North and South Viet Nam. They were the North Viet Nam Dong (VND) and the South Viet Nam Dong (SD) before 1978. On 3 May 1978, a uniform currency, the Viet Nam Dong (D) was introduced for the Socialist Republic of Viet Nam (unification in 1976).
The two currency areas did not have a common exchange control law. Before May 1975, all exchange trade regulations applying in the South had been repudiated and new regulation similar to that prevailing in the North had been progressively introduced. Exchange control was administrated by the State Bank (the Central Bank) in Hanoi for the North and its branch office in Ho Chi Minh City for the South.
Viet Nam adopted a multiple exchange rate system. The rates including:
1. Official Rate
2. Commercial Rate: Rate for the foreign trade purposes, export receipts
3. Noncommercial Rate: Rate for the inward remittances and all other invisible transactions like tourism
4. Convertible Currency: Exchange rate for transactions with the convertible currency area
5. Effective Rate: A controlled, floating rate which linked to a basket of foreign currencies
6. Auction Fixing: Rate applied to all transactions
From 1954, the VND became the monetary unit of the Democratic Republic of Viet Nam. The Official Rate was aligned to U.S. Dollar. However, under the impact of Soviet currency reform in 1961, Dong was also aligned to the Ruble. Besides, a Commercial Rate was established for the external trade purposes.
Following the devaluation of U.S. Dollar, a controlled, floating Effective Rate for the North Viet Nam was set up in 1973. With the North Viet Nam conquest of South Viet Nam completed in 1975, VND and other foreign currencies were removed from circulation. In the following year, the North and South Viet Nam were unified and formed the Socialist Republic of Viet Nam. The dual currency structure still continued. But, the only transactions permitted between the two regions were officially authorized trade and travel.
In May 1978, a uniform currency called the Viet Nam Dong (D) was introduced. During 1978-1985, several rates were created. They were Effective Rates for Dong, Export Rate for the exchange for export proceeds of local corporations and Basic (Official) Rate.
Started from 1986, the Noncommercial Rate was divided into three categories: a) noncommercial rate from the nonconvertible area; b) noncommercial rate from the convertible area; and c) two special rates for the Ho Chi Minh City (premiums granted to inward remittances and to sales of foreign exchange to tourists)
In 1987, the Basic Rate was abolished as well as the export premium and import profits taxes. The rates between convertible and nonconvertible areas became indifferent
Up till 1989, the Commercial and Noncommercial Dong were merged and becoming the Convertible Currency Rate. This new rate governed all the transactions with the convertible currency area. But one year later, the Effective Rate replaced the Convertible Currency Rate. As the government moved toward a free-market economy, the SBVN arbitrarily set the exchange rate, often at only a fraction of the price on the black market, and the country's banks have largely followed the black market rate since 1989. But after the set up of the new foreign exchange centres, which opened in Ho Chi Minh City in August 1991 and Hanoi in November, the foreign exchange centres set the official rates. (FEER)
In 1991, another new rate called the Auction Fixing Rate replaced the Convertible Currency Rate for governing all transactions. In 1994, the interbank foreign exchange market began operation and the currency control was relaxed. The market permitted spot and forward transactions in six currencies and the authorities widened the fluctuation-trading band for the Dong in the interbank market. Besides, according to the decision making on 6 August 1998, the general director or directors of credit institutions were allowed to fix the spot buying and selling rates between the Dong and foreign currencies. (EAER)
On 25 February 1999, the SBVN announced that there would be only one Dong/U.S. Dollar exchange rate, which based on weighted average actual transaction rate in the interbank foreign currency market between Viet Nam Dong and U.S. Dollar. Based on this exchange rate, the commercial banks can set their own rate within a band of plus and minus 0.1%. Thus, the exchange rate system was reclassified as a crawling peg in 1999.
Major sources of reference include:
1) World Currency Yearbook (WCY)
2) IMF Annual Report on Exchange Arrangement and Exchange Restriction (IMF)
3) Vietnam: Vietnam Forex Control Mechanism Moves Dong towards Convertibility. Washington: East Asian Executive Reports, 15 Oct 1998. (EAER)
4) Out of the Black: Vietnam Moves Closer to Genuine Currency M. Hong Kong: Far Eastern Economic Review, 27 Feb 1992; Vol. 155, Iss. 8; pg. 54, 1 pgs. (FEER)