This is something I wrote (gulp!) more than 20 years ago.  I’m re-posting it here because I think it is instructive regarding the financial problems we are facing here in the US 21 years later.  When I visited Vietnam in 1990, the country was suffering from sporadic bouts of severe inflation.  The US embargo was still in force, but American-made products were everywhere, as were US dollars which were in high demand as a hedge against the unpredictable dong.  For larger purchases such as mopeds, people carried around little rings of gold.

My article is about independent credit centers that Vietnamese companies started setting up in order to raise money for their operations.  The government was clueless about banking and finance, and so the official financial industry was hamstrung by its incompetence and refusal to allow foreign financial companies to operate in Vietnam.  So these companies figured it out for themselves, and started up credit centers offering interest rates high enough to pull people’s money away from the gold and US dollars they had been hanging on to.  They also paid depositors returns based on the price of gold, protecting them from fluctuations in the dong.

I’ve long been amused by Americans who ridicule “gold bugs”.  In other parts of the world, the failings of fiat currency are widely understood — and not only by people with advanced degrees in economics.  Indeed, the average Vietnamese farmer could put many American professors to shame in this area.  So I guess it shouldn’t be a surprise that the credit centers in my article used the value of gold to determine how much to pay depositors.  But can you imagine what would happen to a US bank that tried to do this?  It would be charged with fraud (or, more likely, terrorism) and shut down.  In the end, I think all of the Vietnamese credit centers were shut down, using the excuse of the one fraudulent pyramid scam.  But the fact that these centers emerged at all — and remained active for several years — in a communist country is pretty amazing.  And the fact that it seems unimaginable here at home should tell us something about the country we live in.


Originally posted on On the Banks on May 16, 2011