Economic Method
The program used import subsidies to pump US dollars into the South Vietnamese treasury. The regimes sold these dollars to business people who held licenses to import American goods. The businessmen bought the US dollars from the Saigon treasury with their South Vietnamese piasters at half the official exchange rate; they then used this cheaply acquired American currency to import US goods. This meant that American manufacturers would still get the same amount of US currency they would have received for selling their goods on the free market, while South Vietnamese importers could get twice as much goods for the same money. The piasters that the Saigon government collected from selling the US aid dollars were to be placed in a fund held by the National Bank of Vietnam, which was to be used to fund the expansion and training of the Army of the Republic of Vietnam, national police and civil service.
During the rule of Diem, the majority of the cost of military, police and public service was paid by the US through the CIP. As the extra money was not actually circulating in the South Vietnamese economy and competing for the same supply of goods and services, inflation was not stimulated. A similar fiscal device was employed in the Marshall Plan aid package for the rebuilding of western Europe following the destruction caused during World War II. One American economist described the CIP as the "greatest invention since the wheel".
Read more about this topic: Commercial Import Program
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