Vietnam’s foreign exchange reserves have seen robust growth over the past decade, reflecting the country’s increasing integration into the global economy. As of August 2023, Vietnam’s foreign exchange reserves stood at an all-time high of over $110 billion.


Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. These reserves play a crucial role in supporting financial and macroeconomic stability. Reserves help ensure there is sufficient foreign currency available to fund imports, service external debt obligations, and intervene in currency markets during periods of volatility.

Vietnam’s foreign exchange reserves have expanded rapidly since the early 2000s as the economy has opened up and export-oriented manufacturing has taken off. Reserves crossed the important threshold of $100 billion in early 2022. The State Bank of Vietnam (SBV) has pursued a policy of accumulating reserves to bolster the economy’s resilience.

In this article, we will analyze the composition, growth drivers, and adequacy of Vietnam’s reserves. The potential benefits and costs of holding large reserves will also be examined. Understanding foreign exchange reserves provides insight into Vietnam’s economic strengths and external vulnerabilities.

Composition of Vietnam’s Reserves

Vietnam’s foreign exchange reserves are held in a variety of asset classes and global currencies. The SBV provides limited data on the breakdown of reserves. However, experts estimate the composition as follows:

  • Foreign currencies – The bulk of reserves are held in leading global currencies like the U.S. dollar, euro, British pound, and Japanese yen. Over 65% is believed to be in U.S. dollars given its status as the world’s primary reserve currency.
  • Gold – Vietnam holds gold bullion bars and gold deposits as part of its reserves. Gold accounts for 5-10% of total reserves.
  • Special drawing rights (SDRs) – Vietnam has allocated SDRs from the International Monetary Fund (IMF) that can be exchanged for usable currencies. SDRs comprise under 5% of reserves.
  • Other assets – A small share is held in other reserve assets like short-term foreign bank deposits.

This diversified composition protects reserves from volatility in specific currencies or asset classes. The U.S. dollar remains dominant due to its liquidity and position in global finance.

Drivers of Reserve Growth

Vietnam’s foreign exchange reserves have expanded more than eight-fold over the past two decades. From just $14.5 billion in 2001, they have climbed to over $110 billion in 2022. Several key factors have spurred this rapid accumulation of reserves:

Export Boom

Vietnam’s biggest driver of reserve growth has been surging exports. Merchandise exports have grown by over 20% annually for two decades, reaching $336 billion in 2021. Key exports like smartphones, electronics, garments, and footwear have fared extremely well. Rising trade surpluses boost foreign currency inflows.

FDI Inflows

Foreign direct investment (FDI) into Vietnam has increased sharply since liberalization began. Net FDI inflows went from $2.4 billion in 2000 to over $19 billion in 2021. This flood of overseas investment must be converted to local currency, enhancing reserves.


Remittances from Vietnamese living abroad have grown to over $18 billion annually in recent years. These remittances represent purchases of foreign currency that ultimately feed into reserves.

External Borrowing

Vietnam’s improving credit rating has enabled greater access to hard currency loans. The government and firms have tapped international bond markets amid low interest rates. These capital inflows must be held in reserves initially.

Adequacy of Reserves

Foreign exchange reserves must be adequate enough to meet a country’s foreign currency needs and navigate crises. Assessing reserve adequacy is complex but commonly used metrics include:

Months of Import Cover

Reserves can finance 11 months of Vietnam’s imports, well above the 3-month benchmark. Import cover reassures that reserves can pay for essential imports like oil, machinery, and raw materials.

Percent of Short-Term Debt

Reserves are equal to over 5 times Vietnam’s total external debt due within a year. This indicates Vietnam can comfortably service external liabilities.

Percent of Broad Money (M2)

Reserves equal 23% of broad money supply M2 in Vietnam. Higher reserves to money supply ratios improve confidence in the currency and financial system.

By all metrics, Vietnam’s reserves currently appear very healthy. They satisfy traditional benchmarks and help underpin macroeconomic stability. However, risks like external shocks necessitate continually monitoring adequacy.

Benefits of High Reserves

Accumulating robust foreign exchange reserves confers several benefits on the Vietnamese economy:

Currency Stability

Large reserves allow the central bank to smooth volatility in the Vietnamese dong through foreign exchange interventions. This promotes currency and financial system stability.

Import Support

Reserves ensure Vietnam can sustain a steady supply of imported inputs like fuel, machinery, and consumer goods. This prevents supply disruptions that would harm economic growth.

Debt Sustainability

By backing external debt obligations, adequate reserves help Vietnam maintain access to international capital markets at favorable borrowing costs.

Economic Resilience

Reserves provide insurance against external crises like financial turmoil, commodity price spikes, and natural disasters. Vietnam can deploy reserves to mitigate these shocks.

Policy Independence

High reserves grant Vietnam more autonomy over monetary and fiscal policy. The country is less vulnerable to sudden shifts in global financing conditions.

Costs and Risks

However, holding massive foreign exchange reserves does entail several costs and risks:

Low Returns

Reserves are invested predominantly in low risk, low return assets overseas. This represents a sacrifice versus higher yielding domestic investments that boost growth.

Valuation Changes

Reserves face valuation changes, particularly versus the U.S. dollar. For instance, dollar appreciation erodes the value of euro or yen denominated assets.

Foreign Dependence

Reserves rely significantly on U.S. Treasuries and dollar assets. This creates potential political vulnerabilities if bilateral relations worsen with America.

Sterilization Burden

To prevent inflation, the central bank must sterilize or neutralize the local currency created when purchasing foreign reserves. This sterilization strains public finances.

Opportunity Cost

Some economists contend accumulating vast reserves incurs an “opportunity cost” by absorbing national savings that could otherwise fund productive domestic investment. This represents forgone growth.

Overall, the stability benefits of reserves are seen to outweigh these disadvantages currently. However, holding over 15 weeks of imports worth of reserves likely confers diminishing marginal benefits. Vietnam may be reaching the point where additional accumulation provides limited extra advantage.

Outlook and Policy

Vietnam’s foreign exchange reserves will likely continue expanding gradually in coming years but at a decelerating pace as the current stock is already ample. Policymakers have outlined some shifts regarding reserves:

Gradual Accumulation

The SBV plans to still accumulate reserves when conditions permit to maintain an adequate buffer. But the central bank will likely be more judicious in further build up.

Active Deployment

Officials have hinted they could deploy reserves more actively to backstop the economy and currency if facing substantial volatility. Reserves may play a bigger crisis response role.

Composition Optimization

There are some signs Vietnam will tweak the composition of reserves to improve returns. Examples include marginally higher gold or corporate bond exposure while remaining conservative overall.

Transparency Improvements

The SBV faces calls to enhance transparency on reserve holdings and operations. Disclosing more detail could bolster credibility and monetary policy effectiveness.

With its robust current reserves, Vietnam has room to focus on measured accumulation, active utilization when required, and extracting additional value from existing assets under management.


Vietnam’s foreign exchange reserves have grown exponentially since the early 2000s as extensive trade surpluses, FDI inflows, remittances, and external borrowing added foreign currency to the economy. Reserves now stand at over $110 billion and amply cover traditional adequacy metrics.

This sizable war chest of reserves supports currency stability, imports, and debt sustainability while also insulating the economy against external shocks. However, further accumulation faces diminishing returns and incurs opportunity costs. The State Bank of Vietnam must now focus on tactically deploying reserves to uphold financial stability as Vietnam continues integrating into the global economy.