Pic: AP.

On the heels of Vietnam’s first online Bitcoin trading floor going live last month, the virtual currency is being accepted by more and more merchants in the country. Distrust over the value of the Vietnamese dong is further fueling this growth.

The weakening dong has made the country’s citizens eager for stronger denominations to keep their money in. In June, the Vietnam’s central bank devalued the dong again – analysts expect further weakening by the end of the year.  Previously gold and U.S. dollars were the vehicles of choice for much of the wealth in Vietnam.

What may be further driving Bitcoin’s popularity is Vietnam’s attempt to reduce the “dollarization” of its economy by prohibiting merchants from pricing goods in dollars and cracking down on the black market trade in dollars. Despite these actions, many sellers of high-end goods, such as apartments and cars, still prefer to receive payment in a currency other than dong. Bitcoin could be the perfect payment system for these types of transactions.

As internet penetration continues to spread throughout the country, and the number of smartphone users continues to increase, there should be a further boost to the popularity of Bitcoin.  The surge in e-commerce activities will likely also promote use of the new currency.

The value of Bitcoin has fluctuated wildly in the past (raising questions about its own trustworthiness), particularly after high profile failures such as the collapse of Japan Bitcoin exchange Mt. Gox. However, in recent months, the currency has been holding fairly steady at around VND 12 million (US$566) per coin.

The Vietnamese government has repeatedly issued warnings about Bitcoin, saying that it does not consider the currency as a valid format for making payments. The central bank of Vietnam has stated that “organizations and individuals [should] not hold, invest or execute any transactions involving Bitcoin or any other similar virtual currencies because possession, trading and utilization of Bitcoin and similar virtual currencies as assets pose risks and are not lawfully recognized nor protected”.

While the government has made a number of similar statements, it has been slow to formulate any clear policy or legal ruling on Bitcoin.  This has allowed the currency to spread steadily throughout the country.