SBV to Consider Limiting Foreign Currency Mobilisation into Banks

Recently, SBV deputy Governor Nguyen Thi Hong shared with the media about the monetary policy direction in 2016. Regarding the opinions of experts that in 2016, the objective pressure on exchange rate is very large and one of the proposed measures is to stop allowing payment or deposit in foreign currency in Vietnam, Hong said:

For the content related to the payment and use of foreign currency in the territory of Vietnam, on October 19, 2015, the State Bank issued Circular No.16/2015/TT-NHNN amending and supplementing a number of articles of Circular No. 32/2013/TT-NHNN dated December 26, 2013 of the State Bank Governor guiding the implementation of regulations on restriction of the use of foreign currency in the territory of Vietnam, applied from December 3, 2015.

Accordingly, apart from general provisions on other necessary cases, the Circular supplements some specific cases in security and defence, oil and gas in Clause 17, Article 4 while cases considered and approved by the state bank to use foreign currency in the territory are only applied to organisations (residents and non-residents) but not individuals.

The Circular also adds the requirement on records, orders and procedures for approval of the use of foreign currency in the territory of Vietnam. Accordingly, the record must be made in Vietnamese. In case, the record components are translated from foreign languages, the selected organisation shall submit certified documents, signature of the translator as prescribed by Vietnam law on authentication or document certified by the legal representative of the organisation.

Also, according to the Monetary Policy Department, over time, the consistent orientation of the central bank is anti-dollarisation, i.e. moving from borrowing-depositing foreign currency to buying-selling relationships, empowering dong.

SBV has persistently implemented solutions following a roadmap including gradually narrowing the foreign currency credit operation through limiting the object allowed to borrow foreign currencies. In case, the interest rate in dong falls, deposit rate ceiling in US dollars of organisations and individuals shall be gradually lessened to ensure a reasonable interest rate difference between the US dollar and dong, thereby encouraging organisations and individuals to sell US dollars to the banking system, reducing the dollarisation and increasing the supply of foreign currency to the market.

Besides, the central bank also discourages foreign currency loans and gradually tightens control on demand for lending in foreign currencies; issuing circular to encourage businesses to insure exchange rate risk through using derivative instruments, instead of buying foreign currency in advance and keeping on accounts.

With the implementation of drastic measures, the dollarisation state in the economy continues to decline, the exchange rate and the foreign exchange market remains stable, the confidence in dong is strengthened. When financial and monetary market really develops, the central bank will consider to have measures to limit foreign currency mobilisation into the banking system.

23-Feb-2016 Intellasia