Vietnam's Antiquated Banking System Hampers Economic Reform

Although some observers have argued that Vietnam may have the potential to become a significant economic force, its antiquated banking system is a major obstacle. In the more advanced economies, purchase transactions can be performed using cash, checking accounts, credit cards, and many forms of electronic funds transfer. In Vietnam, electronic transfers are virtually unknown, checking accounts are just being introduced, and banks are just beginning to accept each other's drafts. Even cash is a problem because the Vietnamese denominations are so small that a new car could not hold the cash needed to buy it.

The government in Hanoi recognizes the problem and says that financial and banking reform are the foremost task in its overall economic reform. The required change is very large because the old socialist banking system focused primarily on funneling funds to money-losing state-owned enterprises. A two-tier banking system has emerged in which the State Bank of Vietnam will set up the rules of a national banking system while commercial banks gather savings, make loans, and handle transfers within Vietnam and abroad. Implementing a new system will be difficult because of the lack of knowledge about how banking could operate and how it should be managed. There are even questions about the basic currency since about $700 million of American currency is circulating in Vietnam and since house prices are often quoted in taels of gold, a Chinese measure.

1. Use the WCA framework to organize your understanding of this vignette and to identify important topics that are not mentioned.

2. What issues (if any) make this case interesting from an international or intercultural viewpoint?

3. How is Vietnam's banking system related to the competitiveness of its businesses?

Source: Keatley, Robert. "Vietnam's Bedraggled Banking System Is Hampering Economic Reform Efforts." Wall Street Journal, May 6, 1994, p. A5.

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