A Market Microstructure Approach to the Foreign Exchange Market in Vietnam
Posted: 27 Feb 2011
Date Written: August 24, 2009
Vietnam’s foreign exchange (forex) market has remained relatively poorly developed despite more than two decades of general economic reform. This paper adopts a market microstructure approach to the investigation of possible reasons underlying this situation. The analysis suggests that the authorities have tended to place special emphasis on maintaining stability in the nominal VND/USD exchange rate, and have relied on a number of administrative measures to support such stability. In turn, stability/stickiness of the VND/USD rate has acted as a retardant in the development of the country’s forex market. In particular, the role of commercial exchange rate quotes as accurate price signals has been materially reduced.
Keywords: Foreign exchange market, market microstructure, Vietnam, VND/USD exchange rate
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