Vietnam Currency Discussion Board

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Central bank to be reformed: SBV Governor

VNECONOMY updated: 21/05/2007

According to the International Monetary Fund’s (IMF) research, the State Bank of Vietnam (SBV) is at the lowest level of the four levels of independence of central banks in the world. How will the SBV be reformed so that its independence is improved? The interview with SBV Governor Le Duc Thuy will partly answer this question.

Do you agree with the IMF’s appraisal about the current independence of the SBV at present?

We will surely have new policies and mechanisms to raise the independence of the SBV. An independent central bank is always necessary in the building of a banking system under international rules.

Independence means having the control to realise necessary measures to maintain macro-stability, to control inflation and to ensure that credit institutions operate healthily under the laws, through creating a favourable environment for sustainable growth.

What is the itinerary for performing this task?

We have to quickly issue two new laws: The Law on Credit Institutions and the Law on State Bank of Vietnam to replace the current laws. We also need the Law on Inspection and Supervision to create a higher legal framework for banking operations.

Our goal is that from now to 2010 those laws will come to life based on the re-organisation of the machinery of the SBV and adjusting the role and functions of SBV branches in provinces and cities to ensure the independent role of the central bank in realising the monetary policy.

It is expected that local SBV branches will see changes. At first, the functions of small branches will be cut down while those of more important branches will be increased. The establishment of regional branches will be considered.

Will the reform of the SBV influence the five state-owned banks which currently account for around 70% of the banking market?

State-owned banks will gradually have self-control before the law like other banks of other forms of ownership. Along with equitisation, the State will only be one of the shareholders of those banks and the SBV may not be the State’s representative for that part of capital, but another organisation.

Will this help put an end to designated loans?

Even when equitisation is not performed, designating loans needs to be stopped and it can be stopped because we have the Development Bank and the Policy Bank to assume this function.

If there are changes, the change would be the further reduction of unnecessary administrative interventions into state-owned commercial banks. In principle, state-owned commercial banks are treated and behave like commercial banks of other forms of ownership.

What do you think about the opinion that SBV should not manage forex reserve fund?

I think there is not much controversy about this issue but there is no central bank that manages the monetary policy without managing the forex reserve fund because it is not financial management but reserve management to keep the value of the national currency. Therefore this fund must be controlled by the central bank and control doesn’t mean that it can spend the fund for any purpose.

But a large part of foreign currency sources from crude oil is now under the control of the Finance Ministry?

The Finance Ministry collects funds in the Vietnam dong or the US dollar, and this is just the form of collection, but when they spend by selling that money outside or sell to the SBV to increase forex reserves is two different processes. Money collected from crude oil is not directly transferred to the forex reserve fund. The SBV also has to buy foreign currency when it wants to have foreign currency for reserve.

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