Tài liệu The situation of dolllarization in vietnam, it impacts on accounting system and economy of vietnam and actions to fight its

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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 1 THE SITUATION OF DOLLLARIZATION IN VIETNAM, IT IMPACTS ON ACCOUNTING SYSTEM AND ECONOMY OF VIETNAM AND ACTIONS TO FIGHT ITS BY DAO THI THU HUYEN E0700248 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfilment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER- 2011 2 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 Date: 3 ACKNOWLEDGEMENT I have support, assistance and encourages of many people to complete my graduation project. First of all, I would like to thank my teacher and also my supervisor Dr. Le Van Lien, International School, Vietnam National University Hanoi. He has kindly helped me and supported me by give so much useful advises and instructions. Besides, I also would like to extend my special thanks to managers and accountants of my survey’s companies, my neighborhood and other people in Thanh Xuan District who have help me to carry out the survey. I want to thank them for all their support, interest and valuable hints. Moreover, I would like to delicate this project to my family who always loving, supporting and believing in me. 4 THE SITUATION OF DOLLLARIZATION IN VIETNAM, IT IMPACTS ON ACCOUNTING SYSTEM AND ECONOMY OF VIETNAM AND ACTIONS TO FIGHT ITS By 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. 5 TABLE OF CONTENTS Declaration of Originality and Word Count 3 Acknowledgement 4 Abstract 5 6,7 Table of Content List of Figures 8 List of Abbreviations 9 CHAPTER 1 INTRODUCTION 1.1 Overview 10-12 1.2 Dollarization in Bank Activities 12-14 1.3 Dollarization in Trade and Invest Activities 15-18 1.4 Motives for more investigation CHAPTER 2 18 LITERATURE REVIEW 2.1 Form of Dollarization 19-21 2.2 Types of Dollarization 21-24 2.3 The Origin of Dollarization 24-25 2.4 Causes of Dollarization in Vietnam 25-28 2.5 Accounting Dollarization 28-30 2.6 Accounting for Changes in Foreign Exchange Rates in Vietnam 30-32 CHAPTER 3 METHODOLOGY 3.1 Research Objective 33 3.2 Research Methodology 33 3.3 Data Source 33-34 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 6 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 CHAPTER 4 37 FINDING AND ANALYSIS 4.1 The Impacts of Dollarization on Accounting System and Economy of Vietnam 4.1.1 The Impacts of Dollarization on Accounting System 38-42 4.1.2 The Impacts of Dollarization on Vietnam Economy 42-45 4.2 Scheme of Actions to Fight Dollarization in Vietnam 45-47 4.3 Findings from Questionnaire Survey 4.3.1 Companies Survey 47-52 4.3.2 People Survey 53-56 CHAPTER 5 57-58 CONCLUSION REFERENCES/BIBLIOGRAPHY 59-61 APPENDICES 62-63 7 LIST OF FIGURES 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 Figure 4.8: Activities that use USD 55 8 LIST OF ABBREVIATIONS FDI Foreign Direct Investment IMF International Monetary Fund USD U.S Dollar VND Vietnam Dong PITCO Petrolimex International Trading Joint Stock Company IAS International Accounting Standards VAS Vietnam Accounting Standards ODA Official Development Assistance WB World Bank ADB Asian Development Bank 9 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%. 10 Figure 1.1: The Dollarization Ratios of Vietnam 35.00% 29.60% 30.00% 30% 26.10% 24.60% 25.00% 23.20% 21.90% 21.30% 22.30% 20.00% 15.00% 10.00% 5.00% 0.00% 1998 1999 2000 2001 2002 2003 2004 2005 Currently, in Vietnam, the prices of commodities in U.S dollars are doing openly in the public such as cars, houses and other information technology products, clothing and other luxury products is becoming more common. The joint venture, 100% foreign capital, some employees were paid in dollars, the cost of hotels and other services for foreign tourists largely paid in dollars. These transactions take place quite freely on the market and increasingly popular. Therefore, many Vietnamese people tend to hold foreign currencies such as U.S dollar in their house, not deposited in banks because they can still perform the function of money as currency. As the result, when people use foreign currencies such as U.S dollar instead of domestic currency such as Vietnam Dong to the savings, the deposit rate of Vietnam Dong from commercial banks must maintain a high level, resulting in deposit rates and capital of enterprises also is highly appropriate. For example, while the business world is still very difficult, the basic rate of 11 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 2003 was 23.6% and 9 months in 2004 was 22%. By the end of 2007, this rate was about 20 % to 21%. This is a positive trend, indicating the status of dollar liabilities in the commercial banking system is to control an effective way. People have more confidence in the domestic currency (Vietnam Dong). However, in 2008 to 2010, when the economic was crisis and the inflation rate was high, Vietnamese people have 12 psychological of fearing the devaluation of Vietnam Dong, thus the dollarization may be have impact on Vietnam economy. According to statistic from figure above, dollarization ratio of Vietnam always above 20% however this rate in other countries in the same area are lower such as Indonesia and Thailand are about 7% to 10%. The State Bank of Vietnam wants to reduce this rate by 15% in 2013. Contrary to the trend of structural transformation of deposits, the share of loans in U.S dollars compared to total loans and investments of the commercial banking system tends to increase, higher than the urban deposits. Especially in Ho Chi Minh City, U.S dollar outstanding loans in the late September 2004 has increased by 2 times compare to the ending balance in 2002. Based on IMF-Vietnam Statistic Appendix 2007, we can see the U.S dollar outstanding loans on total loan of Vietnam from 2003 to 2007. Table 1.1: U.S dollar Outstanding Loans on Total Loan of Vietnam Time Rate (%) 2003 22% 2004 24.9% 2005 24.3% 2006 21.1% 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 13 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 economic crisis. 14 1.3 Dollarization in Trade and Invest Activities Firstly, I would like to look at the dollarization in trade activities. Sales online and trading imported products, especially electronics products are two sectors that have strong dollarization in Vietnam’s trade activities. When people surf the website of any online sales companies in Vietnam, they can see intuitively the listing prices in USD and VND. USD is list in almost 100% of websites that sell electronics such as computers, and appliances imported, and etc. According to statistic, in 2010 Vietnam spent 9 billion USD to imported electronics goods. Although the two types of reviews are parallel but the actual payment is always made in U.S dollars, if the customer paid in VND, the price of goods will be based on the exchange rate between U.S dollar and VND at the date of transaction. These goods are often business goods that Vietnam has to do total import or partly imported so the price would depend entirely on the USD. Therefore, these enterprises in order to avoid exchange rate risks, they forced themselves to listed prices in U.S dollars. In addition, now companies are listed products in U.S. dollars valued with hope to increase the modern and electronic commerce. As the result, this is very worrying because the online business will become the main type of business in the future. The use of U.S dollar in trade activities causes the exchange rate of USD and VND increase. This figure below shows the exchange rate of USD and VND from 1988 to 2010. From this figure, we can see that the value of Vietnam Dong is decrease compare to USD. This exchange rate is always change, especially in the first quarter of 2011, in some moment 1 USD can exchange approximate 21,000 VND. 15 Figure 1.2: Exchange Rate of VND and USD from 1988 to 2010 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 18,932 16,610 16,930 15,770 15,800 16,017 16,110 11,500 10,800 900 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 16 total disbursement. In 2009, the total amount of ODA was 5,056 million USD (loans was 4,822 million USD and grant aid was 234 million USD) and the disbursement of ODA was 3 billion USD. Ministry of Planning and Investment has said that total ODA disbursement in 2010 reached 3.5 billion USD, approximately 144.2% over the year plan. Of these, about 3.2 billion of loans and grant aid about $ 300 million. Compared with the disbursement of ODA in 2009, disbursements under the program and projects in 2010 are expected to increase 30% to 2.942 billion USD. With all the money borrow, Vietnam’s government can practice a lot of invest activities to push economy developed such as build houses, new roads, infrastructures and etc. Furthermore, Vietnam now attracts more and more foreign investors. They come to Vietnam to do in businesses. Foreign Direct Investment in Vietnam includes both direct and indirect investment. The total amount of indirect investment in 2006 was 2 billion USD, 6.3 billion USD in 2007 and 4.6 billion USD in 2008. Figure 1.3: FDI of Vietnam from 1990 to 2009 120,000 100,000 80,000 1990-2006 2007 60,000 2008 2009 40,000 2007-2009 20,000 0 Projects FDI Resign FDI Practice 17 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. 18 CHAPTER 2: LITERATURE REVIEW In recent years, Dollarization becomes a familiar word in Vietnam. Dollarization of the economy can be understand as in an economy when the foreign currencies are widely used to alternative all or some functional of domestic currency, then the economy were considered as whole or part of dollarization. Additionally, International Monetary Fund (IMF) define dollarization as “the holding by residents of a significant share of their assets in the form of foreign-currency-denominated assets, is a common feature of developing countries and transition economies and is thereby typical -to a greater or lesser extent -of many countries that have IMF-supported adjustment programs”. According to the criteria of the IMF, an economy is considered to be high dollarization situation when the proportion of foreign currency deposits (FCD) accounted for 30% or more in the broad money (M2) included cash in circulation, cash deposits, term deposits and foreign currency deposits. According to Yuma Knish, the Asian Development Bank’s Vietnam director, “dollars make up about 20 percent of money used in Vietnam” (Asian Development Bank’s 44th Annual Meeting in Hanoi). This means that the dollarization ratio of Vietnam is moderately high. 2.1 Form of Dollarization DE NICOLO ET AL. (2005:1699) probably put forward the most useful and coherent definition of dollarization. They make a distinction between three forms of partial dollarization. They said that “It is useful to distinguish among three generic forms of dollarization that broadly match the three functions of money: payment dollarization (also known in the literature as currency substitution) is residents’ use for transaction purposes 19 of foreign currency in cash, demand deposits, or reserves at the central bank; financial dollarization (also referred to as asset substitution) consists of residents’ holding of financial assets or liabilities in foreign currency; real dollarization is the indexing, 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 Store of value (Asset and Unit of account (Direct and substitution) Liability substitution) 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 20
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