Vietnam, where Vietnamese coins are no good by mattsteinglass
May 17, 2010, 12:34 pm
Filed under: Economics, Vietnam

My colleague Erica Grieder at The Economist has a nice post up relating Joachim Kalka’s essay on coins in the New Left Review to the possibility that increasing use of debit cards will lead to a more cash-free economy. Strangely, it seems to me that electronic innovations have actually led to more cross-country differences in modes of payment over the past 40 years, rather than less. In the Netherlands, for instance, credit cards are rare; tighter regulation meant they never had the explosion in credit card offerings that hit the US in the ’80s. On the other hand, they were using debit cards much earlier and more ubiquitously than the US.

Meanwhile here in Vietnam, the economy is exceptionally cash-based, considerably more so than in, say, Africa. Here, in fact, they have no checks. Never have. Hence, they’ve never sent bills through the mail: there’s no way to pay them. They send actual human bill collectors around to collect your phone bill, water bill, electric bill, etc. in cash at your door. This is only now beginning to change, with options for electronic bill payment at ATMs or via mobile phone. But while it’s an exceptionally cash-based economy, it’s not coin-based. In fact, for decades, there were no coins at all. It was all paper money. There are still a bunch of antique Chinese coins floating around, with square holes in the middle; they’re used for jewelry and decor. A few years ago, though, the government decided to start issuing coins, because they last longer and are in the long run cheaper to circulate. The result is this:

This is a roll of Vietnamese 5000-dong coins (about $0.25). Here’s the thing: nobody will accept them. I mean, official shops will, and probably chain supermarkets and so forth. But taxi drivers won’t, people in the market won’t, and basically most individual owner-proprietor businesses won’t. Why not? Because they’re afraid they won’t be able to spend them, because nobody will accept them. It’s a completely irrational collective-action problem. The things are issued by the Vietnamese government; they’re clearly unfakeable at any reasonable cost, who would want to fake a $0.25 coin anyway, and if they did, who would care? You could just let it circulate, it wouldn’t do any harm. But for some reason your average Vietnamese person will simply not accept their own government’s coinage as legal tender. They only trust the banknotes. Craziest thing.


6 Comments so far
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One of the things I liked about Vietnam (and there were many) was never having to deal with coins. Conversely, it’s impossible to do anything in Japan without walking around jiggling an obscene amount of metal. I believe the smallest note there is 1,000 yen. In other words, ten bucks. BTW: you forgot to mention that vietnamese merchants really like to be paid in US dollars.

Comment by Ethan Epstein

Hi Ethan — it’s true, I’d rather have too few coins than too few notes. I think. But hunting for 500- and 1000-dong notes gets to be a real pain, and there seem to be occasional shortages of small change throughout the economy that feel related to the absence of coins, to me. As for dollar preference, it’s still true that you can pay pretty much anywhere in dollars, but there’s less of a preference than there was some years back. The government has been managing the exchange rate fairly competently, targeting a long slow decline, and there have been several occasions when the street value of the dollar actually fell by 5% against the dong for months at a time, so people don’t assume it’s always a better store of value quite the way they used to.

Comment by Matt Steinglass

For a few years, back in 2005-2006, the VN Gov’t refused to print any more small (<5000d = US 20 cents) bills. As Matt explains, that didn't sit well with the market ladies. As a result, the small bills remaining in circulation got grottier and grottier, more and more tattered and dangerous to the health of users. If a market lady was short on bills, she'd make change with a garlic bulb or a handful of herbs. Finally, the Gov't gave in and began printing small bills again — an event that demonstrates that even in a one party dictatorship, the people can prevail over the bureaucrats if they are stubborn enough. David in Hanoi.

Comment by nworbd

[…] Vietnam, there is an exceptionally cash-based economy and coins won’t circulate. The article states that the government issued coins a few years ago, but nobody will accept […]

Pingback by May 17, 2010: America the Beautiful Quarters, San Francisco Mint, Dollar Coins in Circulation | Coin News

I’ve found everyone was happy accepting coins until about a year ago. Then they wouldn’t take them. Now they’ve gone out of circulation, almost, and I haven’t seen one in a long time. A couple of years ago I carried around about ten at any stage and never had trouble offloading them, anywhere. As for the small notes, I haven’t seen new ones around and usually get small change in the form of chewing gum at most mini marts. Which I’d rather have anyway, even if banana Wrigley’s isn’t proper legal tender.

Comment by helen

[…] Vietnam, there is an exceptionally cash-based economy and coins won't circulate. The article states that the government issued coins a few years ago, but nobody will accept […]

Pingback by America the Beautiful Quarters, San Francisco Mint, Dollar Coins in Circulation | Coin Update

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