Problems relating to Trade and Investment on Vietnam
12. Exchange controls |
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Issue |
Issue details |
Requests |
Reference |
| (1) Restricted Foreign Exchange Transactions by the Principle of Actual Demand | - The State Bank of Vietnam (SBV) prohibits speculative trade based on the principle of actual trade, and requires commercial banks to confirm if the transaction is for actual trade (such as invoices, loan agreements, etc.) A member firm's subsidiary (MFS) is unable to execute remittance both ways with one of the companies of its group in Singapore in settlement of account in foreign currency. | - It is requested that SBV liberalises foreign exchange transactions. | - SBV Foreign Exchange System |
| (Action) - The Foreign Exchange System based on the real demand principles prohibits speculative trading. It is incumbent upon applicants to show the transactions are based on the real demand to financial institutions in purchasing foreign currency. - The Central Bank directs financial institutions to confirm the real demand, and consequently commercial banks require presentation of Transaction Contract, Invoices and proof of customs clearance. Confirmation of the real demand is also necessary for conversion of VND into foreign currencies (inclusive of forward contract). It is equally necessary to confirm real demand in regard to capital transactions for exchange from foreign currency into VND. |
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| (2) Restricted Loans in Foreign Currency | - Enterprises without income in foreign currency face difficulty in business operation, being unable to borrow in foreign currency in Vietnam. - The following are problems relative to borrowing in foreign currency: -- Enterprises without foreign currency revenue are unable to borrow in foreign currency from domestic financial institutions. -- Requirement for submission of documents showing the fund disposal (certificate for actual demand) -- The borrowed fund must be used by the end of the following day. - State Bank of Vietnam (SBV) restricts the application of bank borrowing. |
- It is requested that GOV deregulates foreign currency control as soon as possible. - It is requested that SBV deregulates the terms for foreign exchange transactions. - It is requested that SBV makes more fluid the restricted application of bank borrowing. |
- Circular No.07/2011/TT-NHNN - Circular No.37/2012/TT-NHNN of The State Bank of Vietnam on 28 December 2012. - SBV Foreign Exchange Scheme |
| (Action) - On 25 March 2011, the Ministry of Industry and Trade (MOIT) promulgated Decision No. 1380/QD-BCT on adjustments based on the List of Discouraged Import Items immediately enforced on the same date. This List encompasses a wide range of products including HS Chapters 73, 84, 85, 87, 90, and 91, such as certain steel made household products (such as stove, scrub brush, hygienic porcelain, etc.), laundry machine, computer, electric appliance, camera, cassette tape recorder, record player, golf cart, passenger car (excluding small trucks), motorcycle, bicycle, stand clock, wrist watch, etc. Products used for production materials are excluded from this List. While this measure is not intended to build up import barriers for the listed items, GOV attempts at restricting their imports by directing State Bank of Vietnam (SBV) to make it difficult for importers through commercial banks (CMBs) to purchase foreign currency to import the listed items in its Official Dispatch No. 3215/NHNN-CSTT of 29 April 2010. SBV directs CMBs to carefully examine the request for loan in foreign exchange, severely control, and restrict such loan. Furthermore, by Decision No. 2677/QD-NHNN of 20 November 2010, SBV established an inter-department working group for monitoring the sale and lending for payment of imported goods, while tightening lending and payment in foreign currencies services. Working Group shall be responsible for monitoring and reporting to the Governor on a daily basis the situation of sale, lending and remittance by credit institutions for payment of imported goods in connection with the list of non-essential imported goods items (under Decision 1899/QD-BCT of MOIT) and the list of essential goods items manufactured locally (under Decision No. 2840/QD-BCT of MOIT of 28 May 2010). SBV does not envisage reducing the MFN tariff rate on the listed items in the near future. |
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| (3) Double Tiered Foreign Exchange Quotation | - Due to the adoption of the crawling peg system, the gap widens in the foreign exchange quotations between the SBV rate and the unofficial market quotations in relation to USD/VND. It has become impossible to purchase USD in Vietnam, delaying the payment to overseas in USD. | - It is requested that Substantive: -- annihilates the unofficial quotation through its own positive involvement in the foreign exchange market, and -- moves into the Floating Exchange Rate System. |
- SBV Foreign Exchange Scheme - Circular No.130/2008/TT-BTC, on Corporate Income Tax - Decree No.160/2006/ND-CP |
| (Action) - SBV on 10 March 2008 published expansion of the official exchange rate band of VND per day to plus or minus 1% (previously, 0.75%) from the official rate of exchange. This was in response to the First Deputy Prime Minister Nguyen Sinh Hung's direction given on 4 March to expand the band to plus or minus 2% as a measure to combat the record hyperinflation rate. The inflation rate in February of 15.7% against the same month in the preceding year was the record high in 12-years due to the spiraling import cost for foods and oil and the surge of imported products from PRC. The majority of Asian currencies (including RMB) have appreciated against US$, while the Vietnamese policy maker attempts to curb appreciation of VND, in order to promote export and to achieve the economic growth target of 8-9% per annum. With its financial policy focused on the supply of currency, GOV is redoubling its effort in curbing the VND appreciation, which effort however has brought about the liquidity crunch. In response to the First Deputy Prime Minister 4 March direction, SBV and GOV will take various measures to curb credit expansion and to combat inflation. - On 25 November 2009, the alienation between the spot rate and the unofficial market rate (UMR)has reached 16%, which is the largest alienation in the last 10-years. UMR starting at USD1.00=10,750 (OERB at USD1.00=17,463 Dong) Dong dropped by nearly 12% to USD1.00=10,980 Dong. After this drop, UMR recovered to 19,500-19,700 Dong. However, a large gap continues to exist between OERB and UMR. - On 11 February 2011, SBV depreciated the inter-bank core forex rate from VND18,932 to VND20,693 to the dollar, imposing the trading band at 1% either side compared to the previous 3%. The devaluation took effect on the same day. SBV stated that the Dong depreciation this time is to moderate the rapid increase in import, while it would take a responsible approach to the inter-bank rate in a more flexible manner. - Since February 2011, the margin of spot transactions to and from USD and VND has been ruled within plus or minus 1.0% of the central bank core rate. - In August 2012, the dual exchange rate has revived in response to the precipitous drop of Vietnam Dong. - On 28 June 2013, Central Bank of Vietnam cut down the VND core rate against USD by 1%, lowering the cap rate of interest on bank deposit in VND and USD. - Since 4 January 2016, SBV has set up "the central rate" in the USD Vietnam dong exchange rate, announced each morning linked to other major currencies, including Japanese yen, EURO, and RMB. The change in the central rate will necessitate deliberation on (1) interbank weighted average rate, (2) fluctuations in the overseas' markets in the major currency in the countries having sizable trade, lending/borrowing, and investment with Vietnam. (3) balancing between macro economy and foreign exchange and (4) objectives of exchange policy and its compatibility against the target. |
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| (4) Rapid Exchange Fluctuations | - Radical exchange fluctuations prevail. As it stands, member firm's subsidiary (MFS) benefits from exchange gain on a direct export transaction in yen. Nevertheless, negotiation for raise in price is difficult. In a transaction with its parent company, the prevailing yen depreciation enables MFS to offer special prices to its customers. However, MFS runs on a thin margin, so that if the exchange rate swings toward appreciation of yen, it will instantly show operational loss: such is the severity of the fluctuation band. | - It is requested that GOP takes step to: -- stablise foreign exchange fluctuations, and -- holds the fluctuation band within a few percents in 6-months. |
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