Integrated foreign exchange management policies have played an important role in the success of attracting foreign investment to Vietnam, improving foreign currency supply and demand, increasing state foreign exchange reserves, and promoting economic growth.
Legal documents shaping foreign exchange management policies
Along with the renewal process and the attraction of foreign investment into Vietnam, in 1988, the government issued Decree 161-HD/BT of the Council of Ministers on the foreign exchange management regulations. In 1998, the government issued Decree 63/1998/ND-CP replacing Decree 161-HD/BT.
These were some of the first legal documents on foreign exchange management, regulating foreign investment activities in Vietnam. These legal documents institutionalized the policy direction of the Party and the State on the mechanism and policy for attracting foreign investment capital with a diversification and multilateral approach to international economic relations; contributing to the implementation of the policy of opening up and international cooperation.
In 2005, the National Assembly enacted Law on Foreign Exchange No. 28/2005/PL-UBTVQH11 and continued to amend and supplement it in Law on Foreign Exchange No. 06/2013/UBTVQH in 2013. The State Bank of Vietnam has actively built and issued decrees and circulars to create a consistent and transparent legal framework on foreign exchange management to guide foreign investment activities in Vietnam, contributing to improving the investment and business environment. Currently, the State Bank of Vietnam has issued and submitted to the competent authority a complete set of legal documents on foreign exchange management related to foreign investment activities in Vietnam.
Flexible payment methods and legitimate use of foreign currency
Foreign-invested enterprises with legitimate revenues in Vietnam (in foreign currency or VND) are allowed to transfer foreign currency abroad or purchase foreign currency at authorized credit institutions to transfer back into the country. Furthermore, the enterprises must ensure that they are transferring or purchasing foreign currency from legal sources, and comply with regulations on foreign exchange management, taxation, customs and other legal provisions in Vietnam.
In order to achieve the goal of stabilizing the value of the Vietnamese dong and limiting the use of foreign currency domestically, in recent years, the State Bank of Vietnam has actively implemented solutions to attract foreign currency into the banking system, contributing to stabilizing the foreign exchange market through policies on remittances, buying and selling foreign currency in cash at authorized credit institutions. Integrated foreign exchange management policies have played an important role in the success of attracting investment in Vietnam. Not only do they improve foreign currency supply and demand but also increase state foreign exchange reserves and promote economic growth.
Foreign investment capital into Vietnam has steadily increased and remained stable, reaching nearly 81 billion VND from 2018 to 2022. The increase in foreign currency supply in the market has enabled credit institutions to enhance the scale of their foreign currency transactions with customers (from 2018 to 2022, increased from $280.7 billion to $397.2 billion) state foreign exchange reserves have been increasingly consolidated, contributing significantly to the proactive management of exchange rates by the State Bank of Vietnam, stabilizing the macro economy.
Attracting foreign investment with a focus on the banking sector
As of December 31, 2022, there are 9 wholly foreign-owned banks, 2 joint venture banks, 50 foreign bank branches, 8 financial companies, and 4 foreign leasing companies among foreign credit institutions in Vietnam. In recent years, foreign credit institutions have constantly deepened their penetration into the Vietnamese market by expanding their operations, developing convenient services, and improving their technological facilities. Such activities ultimately serve as the basis for attracting foreign investment into Vietnam. Furthermore, foreign credit institutions play a vital role in this process by introducing, promoting, and supporting foreign businesses to invest and conduct business in Vietnam, as well as providing loans and supplying Vietnamese banking products and services.
With advantages in finance, experience, advanced product processes of parent banks, and foreign currency cost advantages, foreign credit institutions have utilized their global networks, especially electronic trading channels, to contribute to the modernization of banking technology and training of high-quality human resources for the Vietnamese banking system.
Attracting capital from international financial institutions
To attract FDI into Vietnam, the policies not only need to be globally professional but also conform to international standards for management and supervision. Additionally, the policies should align with the best practices followed worldwide. In addition, it is important to have clear and transparent regulations in place, coupled with streamlined procedures for investment applications. In the coming years, the State Bank of Vietnam will continue to review and research to continuously improve the management mechanisms and policies to create favorable conditions for selectively attracting foreign investment capital according to Resolution 50-NQ/TW of the Party Central Committee on perfecting mechanisms, policies, and improving the quality and efficiency of foreign investment cooperation until 2030 and Resolution 58/NQ-CP of the Government.
Indeed, many countries around the world have successfully attracted foreign direct investment by applying effective foreign exchange management policies. Only strict, coherent, and safe foreign exchange management policies can attract the attention of investors. In addition, in the context of the Fourth Industrial Revolution, foreign exchange management policies need to be accompanied by the development of information technology to create a convenient and favorable working environment for investors. Full and developed infrastructure is also an important factor in attracting foreign direct investment.
Conclusion
Thus, foreign exchange management policy plays a very important role in the development of a country. To attract foreign direct investment, foreign investors needs to be guaranteed legally and safely. Moreover, adopting international standards and enhancing the level of professionalism, as well as the application of information technology, will help take the policy to the next level. Foreign exchange management policy will certainly promote the development of the economy and contribute to creating a sustainable future for Vietnam.
HMLF is always available to offer assistance in understanding the procedures with authorities.
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