Cash hungry economy to absorb new coins and notes

The State Bank said this month’s long-awaited reintroduction of coins was part of an effort to bring the country’s monetary system into line with international standards.
The VND500,000 notes were intended to meet the payment demands of the country’s economy, the bank said.
“Metal coins were used in Vietnam in the 1980s but three-figure inflation forced them out of circulation,” State Bank Governor Le Duc Thuy said.
“Now, with inflation below 5 per cent per annum, it is time to re-launch them as they will positively change both people’s spending habits and transactions in the banking sector.”
Domestic banks applauded the return of coins saying it would help reduce costs and prevent counterfeiting.
“Although coins are more expensive to produce, they last longer than notes,”a Bank for Agriculture and Rural Development of Vietnam representative said.
“They will help reduce the cost of printing and distributing money and labour costs thanks to the widespread use of coin-counting equipment.”
The coins, to be issued in denominations of VND200, VND1000 and VND5000, run little risk of being counterfeited because, as Thuy pointed out, “the production cost does not make it a worthwhile proposition”.
Together with the VND500,000 notes, a new version of the VND50,000 note, will also be issued.
“Increasing demand for high-cost transactions in the economy calls for the use of higher-value notes; the biggest dong note now is as low as VND100,000, or a mere $6,” the governor said.
However, the introduction of the VND500,000 note has sparked fears of inflation. Some worry that pumping 200 million VND500,000 notes – equal to $6.5 billion – in the economy within two months, as announced by the SBV, will set off inflation.
But, Thuy allayed the fears saying the State Bank would siphon out of the economy the same amount in smaller notes.
“This is merely a move to change the face value of the money in circulation to make the currency structure more appropriate,” he assured. “If there are any worries in the market, I believe it would just be psychological.”
Senior economist Le Dang Doanh pointed to a practical concern.
“The main issue is how to balance the cash inflow and outflow. If the State Bank can assure there will be no mistakes in the exchange process, which may lead to an increase in money supply, then inflation could be avoided.”
A feature of the new notes will be they will be made of polymer – a highly durable material used in only 16 countries to print money – instead of traditional cotton paper.
They will also have a high-security design to prevent counterfeiting.