The dong has been issued by the the State Bank of Vietnam as the official currency of Vietnam since that country's official unification in 1978. The dong is not traded openly on global forex markets and is the third-lowest valued currency against the U.S. dollar - plus it is expected to weaken further throughout 2009 as the Vietnamese government boosts exports.
The Vietnamese adopted the dong as their currency in 1945 and from then until Vietnam's official post-war unification in 1978, the northern and southern parts of the country minted their own version of the dong, which means "copper" and was divided into 10 hào. After the fall of Saigon in 1975, southerners were forced to exchange their dongs for a new "liberation dong" at a rate of 500 to one; three years later on unification, North Vietnamese exchanged their old dong for new at a one-to-one rate while South Vietnamese got only 8 new hào for their old "liberation dongs".
Over the years, inflation has so eroded the dong's value that it is now worth around 17,000 to the U.S. dollar. The dong itself is printed in denominations ranging from 200 to 500,000 (the 500-dong note shown above features communist state founder Ho Chi Minh, after whom the HoChiMinh Stock Exchange is named) and the hào is no longer minted at all. The dong became the world's third-weakest currency in 2005 behind the Zimbabwean dollar and the Mozambican metical.
In the black
The Vietnamese government does not allow the dong to trade freely on world currency markets, leading to a flourishing black market in the currency that usually trades the dong at rates well below its official conversion rate. Last August, for example, the dong traded at 18,500 to the U.S. dollar compared to the official rate of 16,000. The government has also effectively 'pegged' the dong's value to the U.S. dollar by allowing it trade only within a narrow band - although that tight policy is now starting to loosen.
A decision in late March 2009 by the State Bank of Vietnam to widen the dong's trading bands with the U.S. dollar from three percent to five percent brought an immediate drop in its value to just over 17,700. The widening is part of Vietnamese government policy to further weaken the dong to stimulate exports after weaker growth in 2008.
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- Vietnam Dong Slips 1.4%, Most in 3 Months on New Band. Bloomberg.