Vietnam is experiencing a rising inflation and volatility in asset markets in recent years. The main reason for this is a large inflow of foreign exchange relative to economic size, which generates liquidity surplus, economic overheating and accumulation of international reserves. Exchange overvaluation is also occurring but it is partly offset by the falling US dollar to which the Vietnamese Dong is almost pegged. This type of economic boom is commonly observed in capital-receiving countries around the world. Aggressive public investment of the Vietnamese government is contributing further to economic buoyancy. Reform of macroeconomic management and the monitoring of incoming capital are called for as Vietnam integrates into the global financial market. Global influences such as high oil and other commodity prices, as well as shocks due to floods and animal epidemics, also affect Vietnamese inflation but the main policy response should be directed to the management of large capital inflows. | Vietnam s rising inflation and asset booms An external explanation
