Decree regulates forex management

Wednesday, Jul 02, 2014 08:23

Government Decree No 50/2014/ND-CP (May 20, 2014) has been issued to regulate and manage State foreign-exchange reserves. The State Bank of Viet Nam (SBV) is the management agency for State foreign-exchange reserves.

State foreign-exchange reserves

Sectors of the State foreign-exchange reserves include:

1. Foreign currencies in cash; deposits in foreign currency abroad;

2. Securities and other valuable papers in foreign currency issued by the Government, foreign or international organisations;

3. Special drawing rights; reserves at the International Money Fund;

4. Gold managed by SBV; and

5. Other types of State foreign exchange.

Sources formulating State foreign-exchange reserves include foreign-exchange bought from the State budget and from the foreign-exchange market, from bank loans and international financial organisations, from foreign currency deposits in the State Treasury and credit institutions bought from the gain in investment of State foreign-exchange reserves - and from other sources.

Foreign-exchange reserves fund

Foreign exchange reserves fund ("Reserves Fund") is used to (1) invest in the international market; (2) perform derivative foreign-exchange operations; (3) perform bilateral and multilateral swap agreements with central banks and international financial organisations; (4) transfer and swap foreign exchange with the exchange rate and gold price stabilisation fund ("Stabilisation Fund"); and (5) meet State extraordinary and urgent demands.

The Stabilisation Fund is used to (1) intervene in the domestic foreign currency and gold market; (2) invest in the international market excluding the investment trust; (3) perform derivative foreign-exchange operations; (4) transfer and swap foreign exchange with the Reserves Fund; (5) sell or advance for foreign-exchange demands arising from performing SBV operations and management; and (6) sell foreign currency for the State budget under the foreign-exchange balancing plan.

Foreign exchange limits

The foreign-exchange limits applied for the Stabilisation Fund are decided by the Prime Minister from time to time. Subject to approved foreign-exchange limits and the domestic foreign-exchange and gold market, the SBV Governor decides maximum foreign-exchange limits to buy gold in the international market of the Stabilisation Fund.

The SBV Governor decides to transfer foreign exchange from the Stabilisation Fund into the Reserves Fund when the balances of the Stabilisation Fund exceed the limits approved by the Prime Minister. If the foreign-exchange balances of the Stabilisation Fund fail to meet requirements of the intervention in the domestic market, the SBV Governor submits the transfer of foreign exchange from the Reserves Fund into the Stabilisation Fund to Prime Minister.

Intervention in domestic market

Based on the objectives of the national monetary policy and the fluctuation of the exchange rate and gold price in the domestic market, SBV sets up a mechanism of intervening in the domestic market. SBV Governor decides the specific intervention plan, including time of intervention, type of foreign currency, volume of foreign currencies and gold, exchange rates and gold prices, forms of intervention (buying, selling, exchanging foreign exchange and gold), partners to perform intervention, transfer of international standard gold into other gold and vice versa if necessary - and others.

Based on structure, criteria and investment limits of the Stabilisation Fund, gold demands intervening in the market from time to time, the volume of gold used to intervene, and requirements of national security, the SBV Governor decides on buying or selling gold in the international market. Criteria for selecting the partners for buying, selling gold in the international market are decided by the SBV Governor.

Management of deposit in foreign currency

When managing the deposit in foreign currency and gold of the State Treasury, credit institutions at SBV and other foreign exchange sources, SBV must comply with the principles of ensuring safety in compliance with criteria and investment limits of the State foreign-exchange reserves, meeting the demands of foreign exchange by the State Treasury and credit institutions if necessary, and liquidity. The SBV manages by investment operations in the international market, cash in the fund or storage, and others decided by the SBV Governor.

The Decree takes effect on July 15, 2014, and replaces Government Decree No 86/1999/ND-CP (August 30, 1999). — MAI COUNSEL

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