1 THE SITUATION OF DOLLLARIZATION IN
VIETNAM, IT IMPACTS ON ACCOUNTING SYSTEM
AND ECONOMY OF VIETNAM AND ACTIONS TO
FIGHT ITS
DAO THI THU HUYEN
E0700248 BACHELOR OF BUSINESS (ACCOUNTING) HONS
HELP UNIVERSITY COLLEGE
OCTOBER-2011
2
THE SITUATION OF DOLLLARIZATION IN VIETNAM, IT IMPACTS ON
ACCOUNTING SYSTEM AND ECONOMY OF VIETNAM AND ACTIONS TO
FIGHT ITS

OCTOBER- 2011
3

DECLARATION OF ORIGINALITY AND WORD COUNT

I hereby declare that the graduation project is based on my original work except for
quotations and citations which have been duly acknowledged. I also declare that it has
not been previously or concurrently submitted for any other course/degree at HELP
University College or other institutions. The word count is _____ words.

(Signed)
_____________________
DAO THI THU HUYEN

OCTOBER- 2011
Supervisor: Dr. Le Van Lien
ABSTRACT
In recent years, “Dollarization” becomes a familiar word in Vietnam. Nowadays,
Vietnam is amalgamating into the global economy, thus Vietnam has to use U.S dollar
in trade and invest activities. Additionally, the habit of use of U.S dollar in daily
activities and trading activities of Vietnamese people and firms lead to the dollarization
ratio of Vietnam higher than countries in the same area. Therefore, dollarization is a
hard situation in Vietnam now. Dollarization has strong impacts on accounting system of
Vietnam’s firms. Furthermore, Dollarization also has both advantages and disadvantages
impacts on Vietnam’s economy. My graduation project aims to discover how
dollarization impacts on Vietnam’s accounting system and economy, it also shows some
explanation about dollarization and actions to fight its.
6

TABLE OF CONTENTS
Declaration of Originality and Word Count
3
Acknowledgement
4
Abstract
5
Table of Content
6,7
List of Figures
8
List of Abbreviations
9
CHAPTER 1 INTRODUCTION


3.4 Research Method
34
3.5 Research Tool

3.5.1 Questionnaire
34-35
3.5.2 Personal Interview
35
3.5.3 Annual Report
35
3.6 Data Collection
35-36
3.7 Sampling

7

3.7.1 Sample Population
36
3.7.2 Sample Frame
36
3.7.3 Sample Size
36
3.7.4 Sample Techniques
37
3.8 Limitation
37
CHAPTER 4 FINDING AND ANALYSIS

4.1 The Impacts of Dollarization on Accounting System and Economy of
Vietnam

Figure 1.1: The Dollarization Ratios of Vietnam
11
Table 1.1: U.S dollar Outstanding Loans on Total Loan of Vietnam
13
Figure 1.2: Exchange rate of VND and USD from 1988 to 2010
16
Figure 1.3: FDI of Vietnam from 1990 to 2009
17
Table 2.1: Forms of Dollarization
20
Figure 2.1: Foreign Reserve Currencies 2006
21
Figure 2.2: International Visitors to Vietnam
27
Figure 2.3: Remittances of Vietnam
28
Figure 4.1: Company’s Respond Summary
48
Figure 4.2: Frequently level of using USD
49
Figure 4.3: Activities that use USD
50
Figure 4.4: Statement
51
Figure 4.5: Methods
52
Figure 4.6: People’s Respond Summary
53
Figure 4.7: Level use USD of Vietnamese
54

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CHAPTER 1: INTRODUCTION
1.1 Overview
In recent years, the term dollarization has been very used by Vietnamese people
and firms especially since Vietnam economy “doi moi”. Therefore, the first part of my
graduation project aims to discuss the situation of Dollarization in Vietnam.
Dollarization may be a good solution for economic market. And dollarization also has
strong relationship with trade and financial situation. It can say that Vietnam’s economy
does not have good effect of dollarization because Vietnam’s economy is different to
U.S’s economy such as wealth, economy structure, capital market and labor market.
Although Vietnam use U.S dollar in trade activities, Vietnam also has variety trade
relationship with other countries all around the world such as Japan, Korea and
European. We can know about the situation of dollarization in Vietnam through figure 1.
1. Figure 1.1 shows the dollarization ratios of Vietnam from 1998 to 2005. From that
figure, we can see that dollarization ratios of Vietnam always high. It was always more
than 20 percent. In 1998, the dollarization ratio of Vietnam was 21.9%, and it was
increase to 30% in 2001. Then, it was reduce to 21.3% in 2003. This ratio in 2004 and
2005 was both 23.2%.
11


35.00%
1998
1999
2000
2001
2002
2003
2004
2005
12

Vietnam is set at 8%, compared with the interest rate "benchmark" of the two
neighbouring countries such as Thailand and Malaysia was 1.25% to 2%. With interest
rates so high, Vietnam’s businesses will be hard to compete with businesses from other
countries where interest rates were low.
When I do my research about the situation of dollarization in Vietnam, I found
that dollarization in Vietnam are see clearly in two important sectors of Vietnam’s open
market economy include dollarization in bank sector and dollarization in trade and
invest sector.

1.2 Dollarization in Bank Activities
The phenomenon of Vietnam's economy widely used in U.S dollar securities
dealers and other activities began to be noticed in 1988 when banks are allowed to take
deposits in dollars. By 1992, the status of dollar strength has increased by over 41% of
bank deposits into dollars is USD. Before this situation, the State Bank of Vietnam has
been trying to reverse the process of economic dollars and has successfully reduced the
level of deposits in dollars into banks to 20% in 1996. But that followed the Asian
financial crisis led to currency devaluation Vietnam, and Vietnam continue to bear the
pressure of the situation of dollars. By the end of 2001, the rate of the dollar sent to
banks increased to 31.7%. This rate has decreased significantly in the coming years, to

2007
22%
Source: IMF-Vietnam Statistic Appendix 2007

By observing the listing price and selling goods and services of foreign exchange
now, observers of foreign currency transactions of the population in many gold shops in
14

Hanoi large scale, the information recorded economic transactions from the underground
and so on can see the extent of using U.S dollars in our country's society is very
interesting. It can be said that Vietnam is an unofficial dollarization. However, the
accuracy of the dollarization data is very difficult to determine. In several years when
interest rates of dollar deposits in foreign banks at a high level, to use the U.S dollar that
people were sent to the bank, the Vietnam’s banks took a larger share of dollars to send
out in foreign banks, mainly in Singapore and Hong Kong, to earn high interest rates.
This causes negative impact because the dollar has not been used for domestic
investment. But, in 1992, dollar interest rates fell sharply, and thus the banks of Vietnam
had no longer profits from overseas accounts so they withdraw a large amount of money
that they send out in foreign banks, which number ranges from 3 to 4 billion. The
amount of money sent abroad was only reduced by half by the time the last in 2003.
After withdrawal of dollars from foreign banks, the banks in Vietnam start let the
domestic enterprises to borrow in dollars to make profit. By the end of 2003, the amount
of bank lending in dollars has occupied of 28%. If we look on the outside, these seem
calm for banks because they take deposits and loans were in foreign currency so it may
not be at risk. But upon closer examination, we found that firms which borrowing
money had faced with difficult when Vietnam Dong was lose value. These enterprises
are mainly revenue in Vietnam Dong however they must pay in U.S. dollars. Therefore,
they must face the risk of exchange rate between the dollar and Vietnam Dong without
the tools to avoid risks. If the dollar price increases, many Vietnam businesses fear that
they inability to pay debts. Then the banks will surely be affected and thereby leading to

Source: The State Bank of Vietnam
Besides, dollarization in Vietnam not only happen in trade activities but also
occur at the invest activities. Vietnam is a developing country with many potential to
develop and it is a potential market for many foreign investors. In order to develop
Vietnam’s economy, Vietnam tries to borrow money from foreign to invest and promote
current economy. One of the most effective tools that Vietnam government use is
borrows money from Official Development Assistance. According to the statistic, we
can see how much U.S dollar that Vietnam borrow to promote and invest to develop
Vietnam’s economy. The total amount of Official Development Assistance (ODA) of
Vietnam in 2008 was 1,389 million U.S dollar; it included 1,277 million USD of loans
and 112 million USD of grant aid. In the seven month of 2008, the disbursement of
ODA was 1,205 million USD about 63% of the year plan. In the disbursement, the loan
of WB, ADB and JBIC was the highest amount with 850 million USD, about 70% of
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
900
11,500
10,800
15,770
15,800
16,017

FDI Practice
1990-2006
2007
2008
2009
2007-2009
18

Figure 1.3 shows the FDI of Vietnam from 1990 to 2009, the amount is calculated in
million USD. Based on the statistic, the foreign investors resign many projects in
Vietnam and almost these projects are practice. The more investors come to Vietnam to
do business, the more U.S dollar cash flow comes to Vietnam. The FDI increase over the
year and it leads to increase the dollarization in Vietnam.

1.4 Motives for more investigation
In recent years, Dollarization is becoming one of the hottest topics in Vietnam.
Nowadays, Vietnam is amalgamating into the global economy, thus Vietnam has to use
U.S dollar in trade and invest activities. Additionally, the habit of use of U.S dollar in
daily activities and trading activities of Vietnamese people and firms lead to the
dollarization ratio of Vietnam higher than countries in the same area. Therefore,
dollarization is a hard situation in Vietnam now. Dollarization has both advantages and
disadvantages impacts on Vietnam’s economy. And dollarization also impacts on
accounting system of Vietnam’s firms. My project aims to discover how dollarization
impacts on Vietnam’s accounting system and economy, it also shows some explanation
about dollarization and actions to fight its. In particular, I would like to have all your
comments and answers and also invite open exchange.


formally or de facto , of local prices and wages to the dollar”.
Table 2.1: Forms of Dollarization
Dollarization
Payment Dollarization
Financial Dollarization
Real Dollarization
Means of payment (Currency
substitution)
Store of value (Asset and
Liability substitution)
Unit of account (Direct and
Indirect)

According to authors, dollarization represent into three forms included payment
dollarization, financial dollarization and real dollarization. Firstly, payment dollarization
which is known as currency substitution in the literature is calculated by sum deposit
dollarization and cash dollarization. Payment dollarization is the use of foreign currency
and deposits as money in parallel with national currency. Secondly, financial dollarization
occurs when people use foreign currencies for their financial transactions. The term
financial dollarization comprises both liability and asset substitution. Furthermore, it
should be mentioned that financial dollarization may be of domestic or external nature,
depending whether financial contracts are made between residents or over contracts
between residents or non-residents. Thirdly, when people use foreign currency for
activities such as pricing wages, goods and services, real dollarization is occur. Now, U.S
Dollar are widely use in Vietnam. In Vietnam, have numerous companies use U.S dollar to
pay salaries. Besides, they also use dollar to set up the price. A lot of goods and services in
Vietnam not only pay by Vietnam Dong but also pay by U.S dollar. For example, when
21

see at website of Vietnamese company or online website such as Vatgia or Enbac, besides

keep foreign currency in bank or note such as paper money to avoid high inflation in
their domestic currency, unofficial dollarization happens in third country. In many
countries, U.S dollar are widely used and accepted in financial transactions, but the
country's government is not consider U.S dollar as legal tender . Unofficial dollarization
may include the following:
 The foreign currency bonds and other non-monetary assets in foreign countries.
 Deposits in foreign currency in abroad.
 Foreign currency deposits in domestic banks.
 Bonds or other valuable papers in foreign currency.
Additional, semi-official dollarization can be known as a country will use both
its own currency and the U.S. dollar interchangeably as legal tender. Under semi-official
dollarization, foreign currency is legal tender and may even dominate bank deposits, but
plays a secondary role to domestic currency in paying wages, taxes, and everyday
expenses such as grocery and electric bills. The latter does not happen in official
Dollarization where the payments and the everyday expenses are released in the foreign
currency, usually the U.S. Dollar. For example, Lebanon and Cambodia are two
countries which are consider as semi-official dollarization.
Furthermore, Official is also known as Full Dollarization that “means taking the
next step, from informal, limited Dollarization (we defined it as Unofficial) to full,
23

official use of the foreign currency in all transactions” (IMF Publication Service). It
refers to the dollar is the only legal tender and there is no local currency. Official
dollarization occurs when foreign currency is only the legal currency in this circulation.
It means that foreign currency is not only lawful use of contracts between private parties,
but also legal in payments by the Government. If the domestic currency exists, it is only
a minor role and is often just a coin or currency in small denominations. We can see that
many countries only apply official dollars when they are failing to implement the
economic stabilization program. Official dollarization does not mean that only one or
two currencies circulated legally. However, the official dollarization usually chooses a

Secondly, the phenomenon of dollars derived from the mechanism of the modern
world currencies, including currencies of some developing countries, especially U.S
dollars, are used in international exchanges to the role the "world currency". In other
words, the U.S dollar is a strong and stable currency. The free conversion of U.S dollar has
been circulating around the world and from the early twentieth century were gradually
replaced gold, performing the role of world currencies. In addition to the U.S dollar, there
are a number of currencies of other countries are also internationalized, such as sterling,
25

German mark, Japanese yen, Swiss franc, euro of EU and so on but the position of the
dollar in international exchange is not large. We can see that only USD is the highest
proportion (about 70% of the total world trade). Thus, people often call the phenomenon
of foreign currency is "dollarization".
Thirdly, in the context of today's world, most countries have implemented the
open market economic mechanism. The internationalization of trade exchange, investment
and economic cooperation more directly impact into the economy and the currency of each
country, so in every country of the objective needs to use the currency the world to
perform some functions of money. As the result, dollarization is the demands and become
routine practice in the country.
Fourthly, dollarization level of each country varies depending on the level of
economic development, educational level and the psychology of people, the level of
development of the banking system, monetary policy and the foreign exchange
management regime, convertibility of national currencies. These elements have lower
levels of the country that will have levels of the higher dollarization. 2.4 Causes of Dollarization in Vietnam
There are several factors to causes dollarization in Vietnam. Firstly, the income of
the strata is low so most Vietnamese people have devoted attention to saving, foresight for
life. The relationship between interest rates and foreign currency, changing trend of the