Time for Vietnam to lop zeros off its currency

The Vietnamese dong is one of the highest-denominated currencies in the world. At the time of writing 1 US dollar was equal to 22,728 dong. It takes US$44 to become a dong millionaire.

The only official currency that is higher is Iran’s, where $1 is equal to around 34,000 rial. The highest unofficial currency is the black-market rate of the Venezuelan bolívar, which passed 29,000 per dollar in September.

Vietnam has the distinction of having the world’s highest-denominated banknote. Nowhere else in the world can you get a note for half a million of something. With so many zeros, such a note is needed.

Once you start getting into big-ticket items, those zeros start stacking up. Lottery prizes and properties are in the billions. And only the bravest publisher dares to quote in dong when talking about mega-projects like the Ho Chi Minh City Metro, where Line 1 is costing an estimated 2.4 billion dollars; US$2,400,000,000 in dong looks like 54,548,400,000,000 (that’s 54 trillion). Apart from most people not being able to comprehend such a figure, it would be easy to miss or add a zero, and completely ruin someone’s career or bankrupt a government department.

Countries never start off with high denominations, and Vietnam is no different. The dong experienced rapid inflation during the 1980s. In 1986 the rate was 1USD/23VND, by 1987 it was 78VND, 630VND in 1988, and 4,500VND in 1989.

Most countries that have had their currency inflate into high denominations eventually re-denominate. Turkey dropped six zeros from the lira in 2005, and Indonesia is now considering a currency adjustment.

The Indonesian rupiah is one of the highest-denominated currencies in the world: US$1 is more than 13,000 rupiah, so to be a millionaire you need about $75. The Indonesian government has proposed a re-denomination that would remove three zeros from the currency, so the current 1,000 rupiah note (about 75 US cents) would be 1 rupiah.

The argument for re-denomination

A contemporary model for Vietnam is Belarus. In 2016 the Belarusian ruble was re-denominated by taking four zeros off the currency. Before re-denomination, US$1 was about 20,000 rubles, making it comparable to the current dong. What was 10,000 BYR is now 1 BYN, so 1 USD is about 2 BYR.

The new currency is modeled on the euro, with coins similar in style to the euro also introduced. The smaller denominations are easier to remember, and spending low denominations feels more sensible as a consumer.

Removing four zeros would turn a 10,000 dong note into a 1 dong note, and US$1 would equal about around 2 dong. To give an idea of the change, notes currently in circulation would convert as follows:

500     = 0.05
1,000   = 0.10
2,000   = 0.20
5,000   = 0.50
10,000  = 1
20,000  = 2
50,000  = 5
100,000 = 10
200,000 = 20
500,000 = 50

The new dong would pave the way for a reintroduction of coins (not counting the rare coins currently in circulation). If Vietnam plans to go cashless by 2020, then maybe coins will be redundant. But at least the option would be there.

A re-denomination would have positive effects such as becoming a currency that is taken seriously. Large projects would be quoted in dong instead of US dollars, as Thailand quotes in baht for its big projects. And eventually you might be able to exchange your leftover dong at exchange booths around the world, which most places won’t deal with.

If Vietnam is to maintain its economic success, and aspire to being ASEAN’s “Silicon Valley”, it is time to consider re-denominating the dong.