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Life is not easy when annual inflation is more than 12 per cent, your currency is likely to be devalued again shortly and you have to splash out on overpriced Lunar New Year gifts to impress your friends, family and colleagues.

But Vietnamese people, long faced with macroeconomic instability, have become expert at cooking up black market schemes to make a little money on the side. The latest ruse, picked up by the Phnom Penh Post, involves travelling to neighbouring Cambodia, withdrawing dollars from an ATM at the official dong-dollar exchange rate and then converting the greenbacks back to Vietnam dong at the superior black market exchange rate.

Concerns about inflation and expectations of another devaluation after the Lunar New Year holiday, known here as Tet, have forced down the value of the dong in the widely-used black market.

So while banks are not allowed to sell dong for any less than 19,500 per dollar, the dong is trading at around 21,000 in gold shops and other unlicensed foreign exchange providers.

One can no longer withdraw dollars from an ATM in Vietnam but it is still possible to do so in Cambodia, where the riel is even more shunned than Vietnam’s lowly dong.

The scheme works like this: a Vietnamese person withdraws $1000 from an ATM in Cambodia and is charged at the official inter-bank rate of 19,500 dong to the dollar, plus the overseas transaction fee of 2.5 per cent. So $1000 would cost them 19,987,500 dong.

But using black market money changers in either Cambodia or Vietnam, they can buy 21,000,000 dong with the self-same $1000. That’s a tidy profit of 1,012,500 dong, or 5%, with little or no risk.

This is not the only cross-border scheme that has been concocted in recent years to take advantage of Vietnam’s peculiar macroeconomic situation.

There is a strong demand for gold, as well as dollars, as a store of value in Vietnam. But government restrictions on the import and trading of the precious metal have forced up the price in the domestic market.

The gap between the domestic and international gold prices is currently around 1,700,000 dong per tael (1.2 troy ounces).

So, traders say, smugglers have been buying gold from Cambodia and other countries at international prices and selling it into the local market at a premium.

If it really wanted to, the government could stamp out black market trading. In the summer of 2008, when annual inflation hit 28 per cent and Vietnam was on the brink of financial collapse, police were posted outside gold shops in Hanoi to halt the illegal forex trade.

In spite of the official promotion of capital controls, the fact that the government allows this illegal trade to continue is a tacit admission that the free black market can often allocate financial resources in a relatively efficient way.

Related Reading

Push for growth hurts Vietnam dong, FT
Vietnam’s gold habit weighs down dong, FT