The State Bank of Vietnam (SBV) has revised a circular regulating foreign currency transactions to make it more flexible and proactive in managing the foreign exchange rate in response to changes in domestic and international market conditions.

The draft circular recently published for comments amends Circular 02/2021/TT-NHNN stipulating foreign currency transactions on domestic foreign currency market among banks authorised to make foreign currency transactions. 

According to the SBV, market conditions, exchange rate levels, and domestic and international interest rate differences are changing rapidly and unpredictably. Therefore, the SBV wants to amend the current policy to increase flexibility and initiative in managing monetary and exchange rate policies in response to changes in domestic and international market conditions.

In some periods such as in 2022, the narrowing difference between Vietnamese đồng- and US dollar-denominated interest rates limited the room for the market to determine the USD/VNĐ forward exchange rate, which might affect market liquidity.

The circular has detailed regulations on issues related to foreign exchange management according to market developments, such as policy regulations on forward exchange rates and bases for determining forward exchange rate cap, which may limit the SBV's ability to react to market fluctuations.

Therefore, in order to maintain flexibility and initiative in management and create more favourable conditions for market operations, the SBV has reviewed and amended Clause 3 of Article 5 under Circular 02/2021/TT-NHNN.

Instead of the current specific stipulations in the circular, forward exchange rate between the đồng and the dollar in forward transactions, and forward transactions in swap transactions will be agreed upon by the parties involved in the transaction and in accordance with regulations issued by the SBV in a given time under the draft circular.

The SBV's proposed change aims to create a basis for more flexible and proactive intervention in the foreign currency market through buying and selling dollar futures with banks. Besides, through foreign currency forward transactions, the SBV can also affect the dollar- and đồng-denominated interest rate difference in the interbank market.

The USD/VNĐ exchange rate has increased sharply in the first months of this year and is trading at a historic high.

The dollar buying and selling price at Vietcombank, the bank with the largest foreign currency transaction scale in the Vietnamese banking system, was listed at VNĐ24,590 and VNĐ24,960, respectively, on March 22. This was the highest dollar transaction price in Vietcombank's history, up by about 2.2 per cent compared to the beginning of this year.

At other banks, the dollar selling price is currently listed in the range of VNĐ24,950 - 24,960.

The exchange rate has still shown no signs of cooling down though the SBV has continuously issued bills in the past nine trading sessions, with the total cumulative winning volume reaching nearly VNĐ130 trillion. — VNS