Sterilization in Vietnam: a look from financial cost

Abstract

    The paper follows Frenkel (2007) to calculate sterilization cost of Vietnam in period 201IM1-2014M6. Based on correlation of NFA and NDA. money multiplier and NDA s components, we find that OMO is the main sterilization tool in Vietnam. Sterilization cost is calculated by alternative scenarios of foreign reserve components and foreign reserve investment rales. The results show that Vietnam had positive cost in some scenarios in 2012 and the first half of 2014 but had negative accumulated cost in June 2014. However, sterilization policy has- exposed the unsuslainability because of large dependency on financial benefit of exchange rale fluctuation