Measuring Central Bank Independence for Vietnam

Abstract:Recent instabilities in conducting monetary policy in Vietnam’s macroeconomics demand instant preparations for adopting a new framework: Inflation targeting. In fact, the State bank of Vietnam has shown the International Monetary Fund its willingness to adopt this framework over the past 5 years since 2005. In order to prepare for successfully adopting this framework and reaching price stability, firstly, and most importantly, the central bank needs to have a certain degree of independence. In fact, the negative relationship between the degree of central bank independence (CBI) and inflation is found in both industrialised countries and developing countries. In this study, legal central bank independence indices are calculated for Vietnam according to the newest and most popular methods of Grilli, Masciandaro, and Tabellini (1991) and Cukierman (1992). We compare and conclude that the central bank independence index of Vietnam is lower than that of other emerging countries. In these countries, like Vietnam, the Central bank is a member of Government. Suggestions for the State bank of Vietnam in terms of improvements in lending regulations to government, thus, are provided.