For instance, is your country suffering from inflation? If you're the leader of Russia, Venezuela, or China, you can try and slap price controls. That they often don't work as supply is curtailed or black markets arise is another matter. Or, you can try Vietnam's solution: since inflation is caused by too much money chasing too few goods, our Vietnamese friends have decided against printing any more money [!] This extreme solution would probably not be introduced in a nominally freedom-loving country, but it's resulted in interesting effects in Vietnam so far. It will be fun to see how this experiment ends, though not for the Vietnamese people I think. From the Financial Times:
A severe shortage of dong [as you can see, the FT delights in double entendres more than I do], Vietnam’s currency, has been causing headaches for foreign businesses in the country as the government tries to control inflation by reining in the supply of notes.
In one sign of the currency crunch, last week Hanoi was forced to give special permission to Morgan Stanley to pay $217m in dollars for a 10 per cent stake in PetroVietnam Finance Corp, instead of making the payment in dong, as is normally required by law.
Elsewhere, an accountant for a foreign firm tried to convert $30,000 into local currency to pay staff salaries and office rent but was turned away when the bank said it did not have enough dong.
“It’s outrageous,” said a foreign executive, spurned in a recent attempt to convert dollars to dong. “We are going to have to go to the automatic teller machine and draw money out to pay salaries by hand.”
A number of foreign businesses have been affected in recent weeks, as the State Bank of Vietnam, the central bank, tries to drain liquidity from the financial system to control inflation and hold down the value of the dong against the dollar.
For the past four months, international bankers and economists said, the central bank had curbed its purchases of dollars, refusing to accommodate commercial banks seeking to offload dollars and acquire dong.
Overnight inter-bank rates for the currency have reached as high as 40 per cent recently although rates dropped last week to 9 -10 per cent when the central bank injected some additional liquidity into the system.
“The State Bank of Vietnam understands that inflation is partly caused by the rapid growth of the money supply,” said Jonathan Pincus, chief economist at the United Nations Development Program. “One way to squeeze the supply of Vietnam dong would be to stop buying dollars.”
Commercial banks in Vietnam will soon have to take another hit from the central bank, which has announced it will require big banks to buy Treasury bills at interest rates below inflation – in another move to drain liquidity from the system.
The central bank says that 41 big banks and credit organisations will have to buy a total of $1.27bn worth of one-year Treasury bills with an interest rate of 7.8 per cent. Banks have formally protested, sending the Ho Chin Minh stock market index down 16 per cent last week.