Vietnam’s Ordinance on Foreign Exchange

The Ordinance of Vietnam on Foreign Exchange was first issued by the National Assembly in 2005 as a crucial legal document regulating foreign exchange activities in Vietnam. It was subsequently amended and supplemented in 2013 as the Ordinance on Foreign Exchange Management. The ordinance aims to create a legal framework facilitating the exchange of currency between Vietnam and other countries, promoting international trade and investment, ensuring macroeconomic stability and protecting national interests. In this article, we will introduce and analyze the main points of Vietnam’s Ordinance on Foreign Exchange.

Legal grounds

• Consolidated Text 2013/VBHB-VPQH of Ordinance on Foreign Exchange

Overview on the Ordinance

One of the main features of this Ordinance is that it defines foreign exchange as one of the economic activities of Vietnam with the international monetary system. All foreign exchange activities of organizations and individuals related to economic, financial, and service areas must abide by the provisions. The ordinance also regulates foreign exchange transactions and related activities, including foreign exchange trading, provision of foreign exchange services, foreign exchange contracts, and settlement of foreign exchange transactions. All transactions must be conducted through authorized credit institutions or foreign exchange trading centers recognized by the State Bank of Vietnam (SBA).
To ensure efficient foreign exchange activities, the ordinance creates a system of licenses for organizations and individuals providing foreign exchange services. All providers must obtain a license from the State Bank of Vietnam, which involves meeting strict requirements and standards. Notably, this Ordinance also identifies prohibited transactions, including money laundering, terrorist financing, and other illegal financial activities. These prohibitions reflect Vietnam’s commitment to international cooperation in anti-money laundering and countering terrorist financing.
The Ordinance also identifies different types of foreign exchange transactions, such as direct investment, indirect investment, borrowing and lending in foreign currencies, payment for import and export of goods and services, and capital transfers. Each type of exchange has its conditions, procedures, and documentation requirements.
Moreover, the Ordinance also outlines regulations on exchange rates and foreign currency management. The SBA is responsible for determining the exchange rates of the Vietnamese Dong and foreign currencies. The exchange rates must be publicized regularly, and the use of foreign currencies in Vietnam must adhere to the regulations on import and export of goods and services, foreign direct investment, and overseas remittance. The State Bank of Vietnam has full control over the management of foreign exchange reserves to maintain and protect national monetary sovereignty.

Remarkable notes

1. Foreign exchange control: The ordinance regulates all foreign exchange transactions and restricts the free flow of foreign currency.
2. Authorized institutions: The State Bank of Vietnam and authorized credit institutions are the only entities that can conduct foreign exchange transactions.
3. Foreign exchange rate: The ordinance sets the value of the Vietnamese Dong relative to foreign currencies.
4. Foreign exchange management: The State Bank of Vietnam is responsible for managing the foreign exchange reserves of the country.
5. Foreign investment: Foreign exchange regulations apply to any foreign investment made in Vietnam.
6. Capital remittance: The Ordinance lays out the procedures for transferring capital and income earned from investments made in Vietnam to foreign investors’ accounts abroad.
7. Foreign currency transactions: All transactions between Vietnam and other countries must be conducted in a foreign currency that is recognized by the ordinance.

Important regulations of the Ordinance on Foreign Exchange

• One of the most important regulations in the Ordinance is the prohibition of foreign exchange transactions that support illegal activities. This includes gambling, human trafficking, drug smuggling, and other illegal activities. Any person found to be engaging in such activities will be subject to severe penalties and legal action.
• Another key regulation that is aimed at facilitating international trade and payments is the system of licensing for foreign exchange activities. This system requires all individuals and businesses to obtain a license from the State Bank of Vietnam before engaging in any foreign exchange transactions. This helps to keep track of all foreign exchange activities in the country and ensures that the government can monitor and regulate these activities effectively.
• One of the most significant provisions of the Ordinance is the requirement for all foreign exchange transactions to be conducted in the official currency of Vietnam, which is the Vietnamese dong (VND). This regulation is meant to promote the use of the local currency in all transactions, thereby reducing the need for foreign currencies and improving the stability of the VND.
• The Ordinance also sets out strict rules on the transfer of money into and out of the country. Any transfers exceeding a certain amount must be reported to the relevant authorities and individuals or companies involved in such transfers must provide proof of the legitimate source of the funds.
• Another important aspect of the Ordinance is the regulation of foreign exchange agents. These agents required to adhere to strict regulations when conducting foreign exchange activities on behalf of their clients. This includes maintaining accurate records of all transactions, providing clients with detailed information about the exchange rates and fees, and adhering to all anti-money laundering regulations.

Objective of the Ordinance on Foreign Exchange

• One of the key objectives of the ordinance is to ensure that all foreign exchange-related activities in Vietnam comply with international regulations and standards. This is important in attracting foreign investment and promoting trade relations with other countries. The ordinance aims to create a transparent and efficient financial system that allows foreign investors to bring capital into the country and invest in various sectors.
• The ordinance also seeks to monitor and control the foreign exchange market in Vietnam, which is crucial for maintaining financial stability in the country. By regulating the inflow and outflow of foreign currency, the government can prevent sudden changes in exchange rates or capital flight that could destabilize the economy.
• Another important objective of the ordinance is to promote the use of Vietnamese dong in financial transactions. While foreign currencies such as the US dollar and the Euro used widely in Vietnam, the government aims to encourage the use of the dong as the primary currency in all domestic transactions. This will help reduce the country’s reliance on foreign currencies and promote the use of its own currency.
• The ordinance also aims to protect the interests of the Vietnamese people by regulating foreign exchange transactions and preventing illegal activities such as money laundering and terrorist financing. The government has implemented strict measures to monitor and investigate financial transactions, including penalties for those who violate the ordinance.
• In conclusion, the Ordinance on Foreign Exchange of Vietnam has set out to achieve several objectives that are critical to the growth and stability of the Vietnamese economy. By promoting transparency, regulating the foreign exchange market, encouraging the use of the dong, and preventing illegal activities, the government hopes to attract foreign investment and promote sustainable economic development.

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