Vietnam Dong Finally Devalued

The Central Bank of Vietnam finally acceded to reality and devalued its currency, the Vietnam Dong, by 3%. Prior to the change, the Dong (as well as its neighbor, the Chinese Yuan, which has also experienced a decline) was one of the few relative winners of the credit crisis. Perhaps this was because the currency had already depreciated significantly in recent years (35% since 1994), as well as because it remains fixed to the Dollar and hence it is impossible for the markets to short it when it becomes overvalued. Vietnam continues to be plagued by double-digit inflation and a surging current account imbalance, which suggest that the currency will probably have to suffer an additional 'correction' before reaching a sustainable level. In fact, the black market rate remains well below the official rate, reports Bloomberg News:

The devaluation followed five interest-rate cuts by the central bank this quarter to help bolster the economy. Policy makers last lowered the benchmark rate on Dec. 19 by the most ever this year to 8.5 percent, from 10 percent.

Read More: Vietnam Devalues Dong to Fight Slowdown, Help Exports