Dollarization in Vietnam

Topics: Currency, United States dollar, Foreign exchange market Pages: 5 (1476 words) Published: February 21, 2013
Dollarization in Vietnam from 2007 to 2010

Overview of Dollarization

1 Definition

Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency in the whole or some parts of currency function. Nowadays, dollarization has become popular all over the world.

2 Classification

← Official dollarization
Official dollarization occurs when foreign currency is only legal currency in the economy. This means that foreign currency is not only used in legal contracts between private parties, but also legal in payments by the Government.  Official dollarization also occurs when the countries fail in implement economic stabilization. Eg: Ecuador ← Semi - official dollarization

Foreign currency and domestic are also the legal in the economy, even sometimes foreign currency can dominate in bank deposits. Foreign currency only used in some payments of wages, tax and other daily expenses. Eg: Panama used both domestic currency Balboa and USD ← Unofficial dollarization

Unofficial dollarization is the case the dollar is widely used in the economy, although that country is not officially recognized. Unofficial dollarization may include the following: •The foreign currency bonds and other non-monetary assets in foreign countries. •Deposits in foreign currency abroad.

•Foreign currency deposits in domestic banks.
•Bonds or other valuable papers in foreign currency stored in a bag.

Current dollarization in Vietnam

1 Situation of dollarization in Vietnam from 2007 to 2010

In Vietnam, according to statistics, the rate of dollarization is always above 20% while this rate in the countries in the region is much lower, such as Indonesia, Thailand and Malaysia… only about 7-10%. The objective of the State Bank of Vietnam in 2010 to reduce this rate to 15%. The phenomenon of D. is occurring in many fields: ← Dollarization in price making and quoting

“According to clause 29, decree 160/2006/NĐ-CP, all transactions, payment, quoting, advertisements of the residents in Vietnam are not carried out by foreign exchange, except for the transaction with credit agency and other organizations being allowed to provide foreign exchange services” However, almost of the price of imported electric goods, cars,…in supermarkets, real estate plans, are quoted by USD. In addition, it is quite common that other goods are quoted by USD from small ones like USB, mouse, laptop… to service goods such as tourism products, tuition fees (especially in foreign language traning center, international education…) and shoes, clothes, food in some restaurant. In short, the replacement of VND by USD with the function as a value measurement of these goods is extremely common. This is also basic problem of dollarization phenomenon. ← Dollarization in replaceable asset

Weighing of foreign money deposit compared to M2. In 2001, FCD/M2 was 31,7% and decreased to 23,89% in 2004, this portion is falling down in following years. This is a positive trend, debt asset in commercial banks system is controlled effectively and the citizen have the stronger belief in VND. Civil hoarding of foreign money: Overseas Remittance accounts for a large proportion of foreign money in Vietnam. USD occupies approximately 80% of total overseas remittance, 20% is EURO, AUD, CAD, GBP, JPY… In reality, the overseas remittance in the banks only engrosses 10%. The overseas remittance has been poured ceaseless into Vietnam and may reach at 8.5 billion USD in 2011. On the other hands, since the high inflation has made the devaluation of VND, the civil have taken priority to hoarding USD. ← Dollarization in payment instrument

Like other developing countries, almost of transactions and...
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