Assessing the Impacts and Policy Alternatives
Edited by Gerald A. Epstein and A. Erinc Yeldan
Chapter 14: Monetary Policy in Vietnam: Alternatives to Inflation Targeting
Le Anh Tu Packard1 INTRODUCTION 14.1 One of the most important challenges facing policy makers is to determine how monetary policy should be conducted in order to meet their country’s national development goals. In recent years a growing number of central banks have convinced each other that the siren song of inflation targeting is worth pursuing,2 even though a strong theoretical case that this monetary rule possesses superior welfare properties has yet to be established. Inflation targeting calls for the ‘explicit acknowledgment that low and stable inflation is the overriding goal of monetary policy’, which implies that a low inflation target should have supremacy over other development objectives.3 For Vietnam, the quest for a pro-development monetary policy has become more urgent because the country is entering a new developmental phase that will be shaped by the terms of its accession to the World Trade Organization (WTO) and commercial treaties with its trading partners. Mindful of both the opportunities and risks that come with this phase, the Vietnamese government has been looking into macroeconomic and monetary policy guidelines to manage this period of unprecedented exposure to the world economy. In keeping with recent fashion among central banks, the State Bank of Vietnam (SBV) expressed interest in exploring the feasibility of inflation targeting. However, the general consensus is that at present Vietnam does not meet the necessary conditions to implement an inflation targeting regime because the central bank lacks adequate tools to carry out an effective inflation targeting monetary policy. Additionally,...
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