Solutions for exchange rate policy of transition economy of Vietnam [Elektronische Ressource] / vorgelegt von Mai Thu Hien

Mai Thu Hien

Informations

• Publié par: martin-luther-universitat_halle-wittenberg
• Publié le: 01 janvier 2007
• Nombre de lectures: 26
• Langue: English
• Poids de l'ouvrage: 2 Mo

Extrait

Solutions for exchange rate policy of
transition economy of Vietnam

Dissertation
zur Erlangung des Grades
Doktor der Wirtschaftswissenschaft
(Doctor rerum politicarum, Dr. rer. pol.)
der Juristischen und Wirtschaftswissenschaftlichen Fakultät
der Martin-Luther-Universität Halle-Wittenberg

vorgelegt
von
M.A. Mai Thu Hien
geb. am 23. August 1976 in Hanoi, Vietnam


Gutachter:

1. Prof. Dr. Dr. h.c. Rüdiger Pohl, Martin-Luther-Universität Halle-Wittenberg
2. Prof. Dr. Martin Klein, Martin-Luther-Universität Halle-Wittenberg

Datum der Einreichung: 07.06.2007
Datum der Verteidigung: 12.07.2007

Halle (Saale), Juli 2007
urn:nbn:de:gbv:3-000012127
[http://nbn-resolving.de/urn/resolver.pl?urn=nbn%3Ade%3Agbv%3A3-000012127]2

Acknowledgements

This doctoral dissertation could not be completed if I have not received the help and
encouragement from numerous people. Firstly, I am greatly indebted to my first supervisor,
Prof. Dr. Dr. h.c. Rüdiger Pohl, who kept an eye on the progress of my work and was always
available when I needed his advices. His great advices, supports, criticisms, comments, and
encouragement helped me to develop necessary knowledge to understand and to build
theoretical context in this dissertation. I also would like to express my deep gratitude to Prof.
Dr. Martin Klein, my second supervisor, for his suggestions and concerns with my
dissertation.

I gratefully acknowledge the financial support of DAAD, without which this dissertation
would not have been possible.

I also wish to extend my thankfulness to my colleague in the Department of Economics,
Martin Luther University, Dr. Ulrike Neyer and Dipl.-Kfm. Martin Ende, who are very
helpful and enthusiastic colleagues, for their best recommendations in sharing experiences to
complete the dissertation. I also would like to convey a special thank to Mrs. Ilona Draga, the
secretary of Prof. Dr. Dr. h.c. Rüdiger Pohl, who assisted me a lot of things to stabilize the
working and study conditions.

At the same time, I want to express my sincere thanks to a number of experts and friends in
Vietnam, who are specialists in field of Monetary and Banking, for their professional
knowledge exchanges and suggestions.

Undoubtedly, the result would be the worst things if I have not had my family’s unlimited
helps in Vietnam. On this occasion, I owe a large debt of gratitude to my mother and father-
in- law, who helped me to collect database as well as information from many sources of
Vietnamese Government. My study would not be successful without my father, Dr. Mai
Trong Thong, who contributed great advices to me in the journey to get the end.

Last, I thank my loving husband and daughter for their patience and wholeheartedly support
for my life. Especially, they were a great source of encouragement helping me to overcome
challenges during this time of study. 3



Table of Contents

Chapter I: INTRODUCTION 8
I.1. Overview and issues to be addressed……………………………………………….......... 8
I.1.1. Overview……………………………………………………………………….......... 8
I.1.2. Issues to be addressed in Vietnam………………………………………………....... 10
I.2. Objectives and scope of study……………………………………………………............. 11
I.3. Study methodology.............................................................................................................. 12
I.4. Study structure..................................................................................................................... 13

Chapter II: CHARACTERING VIETNAM’S EXCHANGE RATE ARRANGEMENT 15
SINCE 1999
II.1. Historical overview of the transition process of exchange rate regime since 1989........... 16
II.2. Characteristics of the exchange rate regime since 1999..................................................... 19
II.2.1. Institutional framework of the exchange rate regime................................................. 19
II.2.2. Monetary policy framework………........................................................................... 34
II.2.3. Negative impacts of the fixed exchange rate regime on the economy..................... 46

Chapter III: CHOOSING AN EXCHANGE RATE REGIME FOR VIETNAM 63
III.1. Recent evolution of exchange rate regimes...................................................................... 65
III.1.1. Classifications of exchange rate regimes................................................................. 65
III.1.2. Exchange rate regime transitions….......................................................................... 70
III.1.3. Advantages and disadvantages of fixed versus flexible exchange rate.................... 74
III.1.4. Determinants in choice of exchange rate regimes..……………….......................... 79
III.1.5. Economic performance across exchange rate regimes……………….................... 84
III.2. Fixed versus flexible – approaches to choose an appropriate exchange rate regime in 91
Vietnam
III.2.1. Country characteristics…………………................................................................. 92
III.2.2. Credibility and independence of the central bank.................................................... 95
III.2.3. Exchange rate regimes and shock absorption........................................................... 136
III.3. Moving toward greater exchange rate flexibility in Vietnam………….......................... 141
III.3.1. Is the pegged exchange rate a good choice…........................................................... 142
III.3.2. New environment for the choice of exchange rate regime…………………........... 144
III.3.3. Advantages of the adoption of flexible exchange rate regime in Vietnam............... 147 4

III.3.4. Consequences of transition to greater exchange rate flexibility............................... 151

Chapter IV: BUILDING A STRATEGY FOR A SUCCESSFUL TRANSITION TO 157
GREATER EXCHANGE RATE FLEXIBILITY
IV.1. Factors for an orderly exit from the exchange rate peg…................................................ 159
IV.1.1. The IMF’s guidance………………..……................................................................ 159
IV.1.2. Assessing Vietnam’s drawbacks according to the IMF’s……..…………............... 168
IV.2. Exit strategy to greater exchange rate flexibility……………………………………...... 173
IV.2.1. Timing of transition to greater exchange rate flexibility……………...................... 177
IV.2.2. Approach to transit to greater exchange rate flexibility........................................... 184
IV.2.3. Sequencing of an orderly exit from the peg.............................................................. 193

Chapter V: PREPARING FOR AN ORDERLY EXIT FROM THE EXCHANGE RATE 195
PEG AND FURTHER STEPS OF REFORMS
V.1. Ground work for inflation targeting in Vietnam............................................................... 197
V.1.1. Transition to inflation targeting................................................................................ 197
V.1.2. Institutional framework for inflation targeting......................................................... 203
V.1.3. Operational issues of inflation targeting.................................................................... 212
V.2. Establishing systems to manage risks .............................................................................. 215
V.2.1. Risk management process in a financial institution................................................... 216
V.2.2. Risk supervision from independent authorities.......................................................... 225
V.3. Developing foreign exchange market................................................................................ 227
V.4. Formulating intervention policy....................................................................................… 229
V.4.1. Developing policies on objectives, timing and amounts of intervention………….. 231
V.4.2. Increasing transparency............................................................................................ 236
V.4.3. Other factors............................................................................................................. 237
V.5. Financial sector reform..................................................................................................... 237
V.6. Steps of capital account liberalization.............................................................................. 240
V.6.1. General principles for sequencing…………………………………………………. 240
V.6.2. Sequencing capital account liberalization with financial reforms…………………. 242

Chapter VI: CONCLUSIONS................................................................................................... 247
BIBLIOGRAPHY..................................................................................................................... 255
APPENDIX…………………………………………………………………………………… 273
5

List of Tables and Figures


Tables
Table II.1. Exchange rate depreciation during the Asian financial crisis, 1997-98…... 18
Tabl