Determinants Of Dollarization Research Articles

Empirical Study on Dollarization in Vietnam

The research is aimed at investigating the facts and determinants of dollarization in Vietnam in the period of 2010-2019. Additionally, the monetary policies implemented by the government and the State Bank of Vietnam are assessed to find their contribution to the success of de-dollarizing in Vietnam. The empirical test is carried out with 120 observations using OLS model. Key findings are: (i) inflation, exchange rate and USD deposit rate have positive impacts on the dollarization in Vietnam; (ii) consumer price index has negative impact on the dollarization; (iii) the two variables of imports and foreign direct investment are not significant, which is different from other previous studies. This may come from the fact that Vietnam is very active in importing and attracting foreign investment, and external investors do not worry about dollarization situation in Vietnam. Some recommendations to the Government and the State Bank of Vietnam are proposed to reduce dollarization in Vietnam to strengthen the reputation and belief on Vietnam dong. Keywords: Asset substitution, Currency substitution, Devaluation, Dollarization, Vietnam

Dollarization of the Banking System: Good or Bad?

This paper assesses the benefits and risks associated with dollarization of the banking system. We provide novel empirical evidence on the determinants of dollarization, its role in promoting financial development, and on whether dollarization is associated with financial instability. We find that: (a) the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross-country variations in dollarization; (b) dollarization is likely to promote financial deepening only in a high inflation environment; and (c) financial instability is likely higher in dollarized economies. The implications of these findings for financial sector and monetary policies are discussed.

Determinants of Dollarization: The Banking Side

Dollarization in financial intermediation has exhibited a widely diverse pattern across countries. Empirical work relating it to macroeconomic variables has had only limited success in explaining the phenomenon. This paper presents a two-currency banking model to show that deposit and loan dollarization are determined by a broader set of factors. These include interest rates and exchange rate risk, as well as structural factors related to costly banking, credit market imperfections, and availability of tradable collateral. The direction in which dollarization tends to move with macroeconomic shocks is shown to depend on those factors as well as on initial dollarization levels.

Determinants of Dollarization: The Banking Side

Determinants of Dollarization: The Banking Side