[Ron Jeremy]

Vietnam Devalues Dong by 2% to Fight Inflation How does devaluing your currency fight inflation?

[Clemenza]

The rather odd thinking on the part of the Vietnamese government is that devaluation, in the short term, will forestall a larger crisis once investors see that the Dong is overvalued considering the current interest rate. Meanwhile, the currency is expected to naturally appreciate in value relative to PPP as interest rates are gradually raised.

The Dong is not a freely floating currency, so the state has to take the steps to devalue or revalue. Nevertheless, the long term goal is to let interest rates go up gradually, which will have the effect of tempering inflation.

The Vietnamese government, in all their infinite wisdom, now have a currency that is overvalued, with concurrent inflation caused by a huge inflow of cheap dollars. If they were smart (which obviously, they are not), they would allow the Dong to float completely.