The Asian Development Bank (ADB) has pointed out a need for regional cooperation in monetary and financial issues, particularly to deal with the issues of multiple currencies within domestic economies.

The region’s biggest development bank made the statement in the latest study, which was published on October 15.

The study, Dealing with Multiple Currencies in Transitional Economies: the Scope for Cooperation in Cambodia , Laos , and Vietnam , is a pioneering work on the multiple-currency phenomenon with important recommendations for promoting regional monetary and financial cooperation.

In the three target countries, other countries’ currencies, particulary the US dollar, are found in broad use. The share of foreign currencies ranges from around 20 percent of all currency in circulation in Vietnam , about 50 percent in Laos , and more than 90 percent in Cambodia .

In this regard, the ADB Country Director for Vietnam , Ayumi Konishi, recognised progress made by the country in de-dollarisation.

“Yet, authorities, especially the State Bank of Vietnam , are fully aware that administrative measures alone cannot be effective”, said the ADB residential chief.

He explained that in order to de-dollarise the Vietnamese economy, it is essential to enhance people’s confidence in Vietnamese dong through sustainable and high economic growth, stabilisation of the foreign exchange rate, reforms in monetary policies, and strengthening of the capacity of financial institutions.

Jayant Menon, Principal Economist in ADB’s Office of Regional Economic Integration, a co-editor of the study, remarked “Dollarisation blunts the tools for macroeconomic stabilisation, especially monetary and exchange rate policy, that a country like Vietnam needs in order to tackle a variety of economic and developmental challenges, such as rising inflation”.

He warned Vietnam , where the US dollar makes up 20 percent of the total money circulation, for its partial dollarisation which may lead to some limitations especially in deploying policies for macroeconomic stabilisation.

Solutions such as official dollarisation, compulsory de-dollarisation and mono currency are all infeasible, said the ADB expert.

Experts recommended three solutions, including the short-term solution which highlights strengthening the momentum for depositing savings in the Vietnamese dong instead of the US dollar or gold. They also urged banks to encourage long-term saving deposits in the Vietnamese dong and reduce sudden changes or any instability in the short-term saving deposit interest rates.

Their recommendations for a medium-term solution included a currency-bound mechanism and reserving the right to mould or print currency.

For a long-term solution, experts recommended the economy be prepared for the de-dollarisation process, building financial institutions and speeding up reforms in the State-owned enterprise sector for sustainable development.

The other co-editor of the study, Giovanni Capannelli, Principal Economist in the ADB Institute, urged monetary authorities of Cambodia , Laos and Vietnam to share information and experiences in order to find a solution to the dollarisation issue.

“The three countries have a lot to gain from closer cooperation, both among themselves and with the rest of the members of the Association of Southeast Asian Nations”, said the ADB expert.

ADB, based in Manila , is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.

In 2009, it approved a total of 16.1 billion USD in financing operations through loans, grants, guarantees, a trade finance facilitation programme, equity investments, and technical assistance projects.

Vietnam will host ADB’s 44 th annual meeting in Hanoi in May 2011./.