In the last few days, it’s been hard to ignore the fact that (according to this VN Express article) Vietnam leads the world in cryptocurrency adoption. A survey by US-based consultancy Finder found that of survey respondents 41% of those based in Vietnam had invested in cryptocurrency, with 28% of the total investing in Bitcoin. It would seem, therefore, that Vietnam leads cryptocurrency adoption despite the fact that cryptocurrency is not a legal means of payment in the country.
Why is Vietnam a Leader of Cryptocurrency Adoption?
According to the VN Express article, one of the main reasons that Vietnam has such a high rate of cryptocurrency adoption is that it offers a method for remittances to be sent from overseas Vietnamese to their families in Vietnam without facing the stiff exchange rates or transaction fees associated with traditional financial transactions.
There are a couple of reasons why I don’t buy this explanation.
First, the gap between men and women who hold cryptocurrency assets was highest of any surveyed country in Vietnam. While this could be representative of the Confucian hierarchical family structure, one would think that if cryptocurrency were used as a means of sending remittances to the country then more women would hold cryptocurrency as the recipient of remittances sent by men and other family members overseas.
Second, the type of cryptocurrency held by the Vietnamese is largely Bitcoin and other highly volatile assets. If the purpose of holding cryptocurrency was to send money home to mama, the choice might be something less likely to lose value rapidly, perhaps a stablecoin like VNDC (see Is VNDC a Stablecoin for Vietnamese Investors?) that is pegged to the Vietnamese Dong and, in theory, would be easily convertible to spendable currency.
Third, the very fact that cryptocurrency is not a legal means of payment in Vietnam is not considered a foreign currency, and that banks are warned not to allow accounts to transact in cryptocurrency means that if someone were sending cryptocurrency home as a remittance payment, there’s no way for mama to convert the cryptocurrency into spendable cash. She may have an asset that theoretically has a great deal of value, but she can’t use it, and this makes the remittance payment essentially worthless. Unless of course mama is using the remittances to invest in foreign stock exchanges, in which case she doesn’t need the remittance in the first place.
Why do I think Vietnam leads cryptocurrency adoption?
There are a few more plausible reasons for Vietnam’s placement at the top of Finder’s poll (here’s the link for the full survey).
First, the Vietnamese have a long history of distrust in the Vietnamese Dong. Ever since the wars of the last century the Dong has had a tradition of losing value quickly. It has only been in the last few years as Vietnam has plugged into the global economy and gained monetary stability that inflation has stabilized and the Dong has ceased to be a symbol of throwing good money after bad.
Second (and correlated), Vietnamese regularly look for assets that hold value more securely than cash currency. Gold, traditionally, has been the asset of choice. It is a physical asset that they can wear as jewelry or bestow as dowry and it will always be exchangeable for goods and services.
Third, Vietnamese are born gamblers. They’re willing to take a risk on something if it promises a chance at big returns. Cryptocurrency, and Bitcoin in particular, has demonstrated a huge potential for upside growth, though it has also seen the opposite, losing tens of thousands of dollars in value in a very short period. But this, coupled with a tendency to lionize individuals like Elon Musk (who is the most influential factor in Bitcoin’s value at the moment), suggests that Vietnamese are willing to take a risk on an asset that may or may not increase in value tomorrow.
What this cryptocurrency adoption means for Vietnam
While I have to question the methodology of the Finder survey as resulting in completely reliable results, it does mesh with an earlier Statista survey that found Vietnam second globally in cryptocurrency adoption (see survey here) behind Nigeria. That Vietnam is a leader in cryptocurrency adoption, is perhaps most largely a problem for its government.
As I’ve discussed before, Vietnam has not allowed cryptocurrency as a legal means of payment (see El Salvador, Cryptocurrency and Vietnam and Cryptocurrency in Vietnam) and has, until just last month, shown little sign of actually moving towards adopting a framework for regulating and taxing the crypto-assets. By refusing to recognize cryptocurrency and leave it unregulated, Vietnam is seeing a massive, and technically illegitimate, outflow of dollars from its economy.
I’m not an economist, but most cryptocurrency has to be purchased using US Dollars. And as Vietnam does not allow its purchase in-country, the Vietnamese who are purchasing cryptocurrency have to obtain US Dollars and send them out of the country to expatriate accounts before they can purchase cryptocurrency. While neither the Statista nor Finder surveys indicated the hard numbers of how much cryptocurrency is actually owned by Vietnamese citizens, if the adoption rate continues to grow and the dollars continue to flow out of the country without any action to recoup their value by the government, then cryptocurrency adoption may lead to an effect on Vietnam’s balance of payments and reserve ratios.
Vietnam’s government is also, by refusing to recognize cryptocurrency in the face of such massive adoption, fostering a black market that encourages an attitude of flaunting the law. Vietnam considers itself a law and order country, the people are generally law-abiding. Corruption is a problem, and it is possible to see cryptocurrency as contributing to that issue. Cryptocurrency is held offshore, there are no methods currently in place in Vietnam to monitor its ownership or sale. It is a simple matter to transfer cryptocurrency from my account to an official’s account in exchange for some benefit or favor. By ignoring cryptocurrency, the government has allowed a simple means of corruption to flourish.
All of this goes to the point I’ve been making for some time. Vietnam needs to recognize cryptocurrency and set in place regulations for its use and taxation. Only by recognizing and regulating it will the government be able to prevent the negative aspects of its use in corruption and illegal transactions and by taxing it gain some benefit from the outflow of foreign currency reserves. And as Vietnam leads cryptocurrency adoption globally, it will be able to see some significant increases in government revenues and FDI contributed via alternative currencies.
While I know the initial refusal to recognize cryptocurrency lay in several scam cryptocurrencies back in 2017, instead of sticking its head in the sand like the proverbial ostrich, the government should have promulgated regulations to prevent such abuses and take advantage of the many benefits that may be available to it by recognizing what is increasingly becoming an acknowledged asset class.