Determinants of dollarization in Vietnam

Pham Thi Hoang Anh

Chapter 9 in Central Banking, Monetary Policy and the Political Economy of Dollarization, 2025, pp 235-255 from Edward Elgar Publishing

Abstract: The chapter aims to assess the determinants of dollarization as well as effectiveness of de-dollarization policy measures launched by the State Bank of Vietnam, especially during a period of the US contractionary monetary policy after the Covid-19 pandemic. By employing the ARDL model based on monthly data, the chapter found empirical evidence that ceiling interest rate for US dollar deposit rate and international reserves are both long- and short-term determinants of deposit dollarization in Vietnam. In other words, by decreasing the ceiling rate for US dollar deposits from 3% to 0% and maintaining a large amount of international reserves, deposit dollarization ratio was observed in a downward trend during 2011–2022. In addition, inflation, the parallel market premium, and interest rate differentials are also found to be important determinants of dollarization status in Vietnam. Interestingly, a shock to world monetary policy, for example an increase in the Federal fund target rate, is not a determinant of dollarization.

Keywords: Dollarization; Central banking; Monetary policy; Ceiling interest rate; Deposit dollarization; Parallel market premium (search for similar items in EconPapers)
Date: 2025
ISBN: 9781803925325
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