![]() ![]() Industrialization increased, and prices became less flexible. Thus, the gold standard system was self-regulating. This situation tended to reduce trade imbalances. Therefore, instead of unemployment, prices in the country with the shrinking money supply would fall, and prices and wages in the country with high exports would rise. That meant the money supply in the country with high imports shrank, and the money supply in the nation with high exports grew. If a nation had an import surplus and no capital inflow to pay for surplus imports, the government literally shipped chests of gold coins to the nations that it had to pay. Much of the money in circulation was gold, or paper currency backed directly by gold. In the 19th and early 20th centuries, many nations were on the gold standard, and most nations fixed their currencies relative to gold. If supply grows relative to demand, the price drops. The market for a currency is much like any other. In this paper, we review the theory of currency management, discuss how Vietnam and other developing Asian nations have recently managed their currencies and suggest alternatives for Vietnam for dealing with the US, an important market. Currency appreciation would also have some, but perhaps not a major, impact on exports of assembled products. Allowing the dong to appreciate (grow in value compared to the dollar) would hurt many farmers unless the Vietnamese government supported them through the central budget which is under strain. Vietnam has to decide how to negotiate its trade relations with the US. Ironically, these clauses are in the Trans-Pacific Partnership (TPP) that the US negotiated with other nations but then decided not to enter. The new Biden administration will not have the same focus on bilateral trade deficits as its predecessor but has appointed many officials associated with labor unions favoring protection and insisting on environmental and labor clauses in trade treaties. ![]() However, the real value of the dong has been stable against the dollar since 2015, and in 2015, Vietnam had an overall trade deficit. That is, the Treasury argues that the Vietnamese dong has been held at “too low” a level to artificially boost Vietnam’s exports. This led the US Treasury to find that Vietnam is a “currency manipulator” and giving an unfair advantage to the country’s exports. Recently, Vietnam’s trade surplus has been increasing, particularly with the United States. Vietnam’s exports have grown rapidly and are now larger than its national output. The full terms of this license may be seen at Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Published in Fulbright Review of Economics and Policy. ![]()
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