The State Bank of Vietnam (SBV) is collecting feedback on a draft circular that will, among other things, allow non-residents legally present in Vietnam to make term deposits in both VND and foreign currencies.
Headquarters of the State Bank of
Vietnam in Hanoi (Photo: SBV)
The central bank argues that the
permission is a measure to prevent "hot money flows,” or flow of funds from one
country to another to earn short-term profit on interest
rates differences, from entering the exchange market. It is also a way to
ensure the legal rights of non-residents present in the country, it said.
The draft, released on July 4, has thus far received positive feedback from
commercial banks and other credit institutions. Directors at a majority of the
banks consider the circular a significant improvement over previous
regulations, the SBV has reported. They said the new rules can help attract
another source of capital and utilise idle capital from expatriates working in
Vietnam.
Furthermore, by allowing foreigners to switch from using a current account in
VND or foreign currency to using term deposits, authorities will also find
it much easier to control the flow of capital from this group.
It is hoped that with interest rates on deposits in foreign currencies at
zero percent, the five to eight percent interest rates for deposits in VND will
motivate more people to deposit their savings in the local currency.
The central bank said that previously, non-resident foreigners in Vietnam were
only allowed to open current accounts in VND or foreign currencies, so the new
circular will also help advance the government’s aim to move towards a national
cashless payment system, and better control foreign currency flows.
The draft circular defines non residents as individuals present in Vietnam
for 12 months or less, who are currently working, undergoing medical treatment,
travelling for recreational purposes, or any employees of foreign embassies,
organisations and companies in Vietnam regardless of time limit.
At present, the SBV is trying to alleviate pressure on interest rates by
increasing liquidity in the money market.
This has happened because the central bank has purchased more foreign
currencies to increase its reserves, according to a second quarter report by
the Vietnam Institute for Economic and Policy Research (VEPR).
Source:VNA
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