Q:

Why did Vietnam revalue its currency?

A:

Quick Answer

In January 2015, Vietnam devalued its currency relative to the U.S. dollar to boost exports. The revaluation allows the country's goods to remain competitive with those exported from other countries in the region, such as South Korea.

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Full Answer

When the Vietnamese dong is low in comparison to the dollar, the products that Vietnam exports remain cheap. Consumers in the United States and other countries may buy more of Vietnam's goods, with Vietnam's economy continuing to grow as a result. The January 2015 devaluation of the dong helped to boost the yield on Vietnamese government bonds and raise the stock index, indicating increased investor confidence. Other countries, such as Indonesia, have also reduced the value of their currency in relation to the dollar.

Because it is a stable country, the United States can allow its currency value to float, meaning that the dollar can rise and fall depending on market forces. Vietnam's government sets the value of the dong by pegging it to the dollar because Vietnam may have periods of instability. The rate of a currency in a pegged system does not change day to day and requires frequent adjustments. The benefit of a pegged system is that a country may avoid rampant inflation during times of political unrest.

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