The State Bank is drafting a Circular amending and supplementing Clause 3, Article 5 of Circular No. 02 dated March 31, 3 of the Governor of the State Bank of Vietnam guiding foreign currency transactions on the foreign currency market of the State Bank of Vietnam. Credit institutions are allowed to conduct foreign exchange activities.
Accordingly, in the past time and expected in the coming time, in the context of rapid and unpredictable changes in the international market, especially the USD target interest rate announced by the US Federal Reserve (Fed), Market conditions, exchange rate levels, and domestic and international interest rate differences are changing rapidly and unpredictably.
In some periods (2022), the narrowing difference between VND and USD interest rates (increasing USD interest rates and decreasing VND refinancing interest rates) has limited the room for the market to determine the USD/USD forward exchange rate. VND, which may affect market liquidity.
Detailed regulations on issues related to operating activities and easily changed according to market developments (such as policy regulations on forward exchange rates, basis for determining forward exchange rate ceilings) at Circular 02 may limit the SBV's ability to react to market fluctuations.
Therefore, in order to maintain flexibility and initiative in operations and create more favorable conditions for market operations, the State Bank of Vietnam has reviewed and amended Clause 3, Article 5 of Circular 02/2021/TT -SBV.
The proposed amendment content is "The forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions shall be agreed upon by the parties participating in the transaction and in accordance with regulations issued by the State Bank of Vietnam." promulgated from time to time.
Accordingly, the basis for determining the forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions will not be specifically regulated but will be issued by the Governor from time to time.
This amendment and supplement is intended to increase flexibility and initiative in operating monetary and exchange rate policies in response to changes in domestic and international market conditions, and at the same time be consistent with the principle of compatibility. Similarly, the central exchange rate and exchange rate range are also regulated in Decisions issued by the Governor from time to time.
Clause 3, Article 5 of Circular 02/2021/TT-NHNN currently stipulates:
The forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions is agreed upon by the parties participating in the transaction but does not exceed the exchange rate determined on the basis of:
- a) Spot exchange rate at the transaction date;
- b) The difference between the two current interest rates is the refinancing interest rate announced by the State Bank of Vietnam and the USD target interest rate of the US Federal Reserve (Fed). In case the USD target interest rate is within the range, the lowest interest rate within that range will be applied.
- c) Term of the transaction.
