The Royal Australian Mint last month issued 85,000 sets of gold and silver $2 coins to mark the 50th anniversary of Australian forces pulling out of southern Vietnam.
The yellow flag in the coin design, contained in a ring, represented the medal ribbon colours awarded to Australian veterans.
The flag was banned by the Vietnamese government after it seized power.
“Vietnam regrets and resolutely opposes that the Royal Australia Mint and Australia Post have issued items with the image of a yellow flag, the flag of a defunct regime,” Foreign Ministry deputy spokesperson Pham Thu Hang= said.
She said that Vietnam has discussed the issue with the Australian government and demanded a halt to the coins’ circulation.
The diplomatic row comes after a senior Vietnamese politician – National Assembly chairman Vuong Dinh Hue – visited Canberra last November.
Pham said the issuing of the coin was “totally unsuitable” for the development of relations between Canberra and Hanoi.
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The Royal Australian Mint defended the issuing of the coin and its design.
“The design of the coin reflects the colours of the ribbons of the service medals awarded to Australians who served in Vietnam, including the Vietnam Service medal, introduced in 1968.
“The Australian Government does not recognise the flag of the former Republic of Vietnam.”
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More than 60,000 Australian defence personnel served and 523 died in the Vietnam War, fighting alongside the US and in support of the former South Vietnam government.
The war continues to be a sensitive subject in Vietnam today.