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Vietnam dollarization: Facts and solutions

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In fact, the world saw some countries achieve success in their initial stages of dollarization such as Zimbabwe in its attempt to curb inflation and Cambodia to attract FDI. This paper is to deal with the forms of dollarization and its advantages and disadvantages and then present the facts of Vietnam’s dollarization and solutions to this. | RESEARCHES & DISCUSSIONS VIETNAM DOLLARIZATION: FACTS AND SOLUTIONS by Dr. NGOÂ THÒ NGOÏC HUYEÀN* Vietnam, as a developing country, has been highly dollarized since the early 1990s and this problem has greatly deteriorated in recent years. However, high level of dollarization is not always a disadvantage in different economies. In fact, the world saw some countries achieve success in their initial stages of dollarization such as Zimbabwe in its attempt to curb inflation and Cambodia to attract FDI. This paper is to deal with the forms of dollarization and its advantages and disadvantages and then present the facts of Vietnam’s dollarization and solutions to this. Keywords: dollarization, bank deposit, inflation, balance of payments 1. What is dollarization? Dollarization is the use of foreign currency to replace one or more functions of the domestic currency. According to a definition of dollarization by IMF, a highly-dollarized economy is one in which foreign currency deposits account for more than 30% of the extended money stock (M2) consisting of cash, demand deposits, time deposits and foreign currency deposits. There are three common ways to categorize dollarization, viz. direct vs. indirect dollarization, full vs. partial dollarization, and official vs. unofficial dollarization. - Direct dollarization is the use of foreign currency as a unit of account, a means of payment and a store of value (especially in form of deposits and bank credit). As for indirect dollarization, it is the issuing of government bonds and corporate bonds in foreign currency to international markets or the indexing of domestic debt contracts in foreign currency. - Full dollarization occurs if a foreign currency is considered as a single currency in use whereas partial dollarization is the use of both domestic and foreign currency in the same country. In such countries, foreign currency is used in accounting, making payment and trading along with the * University of Economics - .