Who Wants to Be A Millionaire?

Vietnam's currency is the Dong. Current exchange rates convert one US Dollar to about 19,500 Dong, so about $51.28 makes you a millionaire in Vietnam. It doesn't mean the same thing here as it does back home, but it is still a lot of money given the cost of living here. The average worker makes about $55 per month, or less than $2 per day. Skilled workers in the major metro areas can make $200-$300 per month whereas the more rural areas might make as little as $10 per month.

The chart shows the exchange rate for the Dong vs the Dollar from 2000 to now, along with the inflation rate in Vietnam. As the economy continues to heat up, the Dong may drop in purchasing power, causing goods to increase in price. The depreciation of the Dong, which is illustrated by the blue area of the chart, makes exports from Vietnam more price competitive globally.

I was looking at the business section of the Saigon Times Daily for December 7, 2010. A few of the articles made me think about issues that Vietnam might face. First, I noticed that banks were offering very high interest rates. Current 3-month CD rates were about 14%, significantly higher than US rates (which are probably less than 1% for a 3-month CD). Given the difference in interest rates, you would expect a further appreciation of the dollar vs. the dong.

There also appears to be an increase in foreign direct investment in Ho Chi Minh City, with an increase of 67.5% from the previous year. Of course, it is likely that investments decreased significantly in 2009 because of the global recession, so the increase is probably off a very small number. I did find it interesting that the capital is moving toward real estate, construction, distribution, manufacturing, service and hi-tech sectors rather than toward industrial parks and export processing zones...

I wonder if Vietnam's strategy is similar to China's, where it is trying to keep the dong low in order to encourage the export business. Basically, Vietnam is exporting cheap labor, and a lot of the multinationals' investments are geared toward exporting the finished goods to other, more developed economies. Companies like Nike, Canon, North Face, etc. all have a presence here. Unlike China, the currency isn't pegged to the dollar. (If it was, the exchange rate would remain stable rather than illustrating a slope.)