In recent years, the role of central banks has significantly changed to meet the demands of globalization and international economic integration. The global financial crisis of 2008 also had a strong impact on the adjustment of central bank activities, leading to an urgent need to expand the role of central banks to ensure the stability of the financial system and effectively supervise systemic risk.
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In Vietnam, the development of the economy in general and the financial system in particular has demanded more specific regulations regarding the responsibilities and authorities of the State Bank of Vietnam (SBV) as the central bank and related agencies in formulating and implementing monetary policies. Moreover, to meet the development of the economy, many new documents have been issued recently; various directives, policies, and orientations for innovation of the Communist Party and the State on banking activities in general and the SBV in particular have been issued; Hence, a coordinated and unified system of banking legal documents is needed. This serves as a legal basis for institutionalizing the directives and policies of the Communist Party and the State, while creating conditions to accelerate the reform and innovation of the organization and operations of the SBV.
On June 16, 2010, at the 7th session of the 12th National Assembly, the Law on the State Bank of Vietnam No. 46/2010/QH12 was passed, which took effect from January 1, 2011, replacing the Law on the State Bank of Vietnam No. 01/1997/QH10 and the Law amending and supplementing certain articles of the Law on the State Bank of Vietnam No. 10/2003/QH11. The SBV Law No. 46/2010/QH12 has many revisions and amendments compared to the 1997 and 2003 amendments. This article aims to introduce some important new points of the SBV Law 2010.
Basic Guidelines for Amending and Supplementing the SBV Law
The SBV Law must institutionalize the viewpoints, directives, and policies of the Communist Party and the State regarding the organization and operations of the SBV; reflect the specific characteristics of the Vietnamese banking system, suitable to Vietnam's political institution, and gradually realize the goals and orientations for developing the SBV as outlined in the 10th National Congress Resolution of the Communist Party. At the same time, the SBV Law 2010 inherits and promotes the advantages and still-relevant provisions; addresses the limitations and shortcomings of the current regulations, ensures the stability of the Vietnamese legal system, and harmonizes related legal provisions while respecting the specific characteristics of the SBV. Additionally, the SBV Law 2010 provides a legal basis to increase the responsibility, authority, and initiative of the SBV in using tools to implement monetary policies and oversee the safety of the banking system's operations; based on the need to strengthen the systemic nature and coherence of the Vietnamese legal system, ensuring the uniformity between newly issued laws with amended and supplemented contents, consistent with related laws, to create overall unity in the legal system. Lastly, the amendments to the SBV Law must comply with international treaties that Vietnam has signed and adhere to international banking practices and standards, creating favorable conditions for our economy's international integration.
According to the provisions of the SBV Law 2010, the SBV has six primary operational areas: Implementing national monetary policy; Issuing money; Lending, guaranteeing, and advancing for the budget; Payment and treasury activities; Foreign exchange management and foreign exchange activities; Information and reporting activities.
Among them, implementing the national monetary policy is one of the most important operational areas of the SBV. In the newly passed SBV Law, many aspects of this section have been adjusted to more accurately reflect monetary policy tools. The law clearly defines the authority of the SBV Governor in deciding the use of tools to implement the national monetary policy. Specifically for the required reserve tool, the law removes the provision on the reserve requirement ratio limit from 0% to 20% to ensure flexibility in the SBV's monetary policy management, while enhancing the SBV's authority in paying interest on required reserve deposits and excess reserve deposits.
New Contents of the SBV Law
Regarding the Formulation and Implementation of Monetary Policy
The law clearly defines the concept of national monetary policy as a basis for establishing the authority of (National Assembly, the Government of Vietnam, SBV) in regards to monetary policy. National monetary policy encompasses national decisions on money by a competent state authority, including decisions on stabilizing the currency value expressed by inflation targets and decisions on the use of tools and measures to achieve the set goals.
Regarding the authority to decide national monetary policy, the law specifies the roles and positions of state authorities in deciding and implementing national monetary policy, based on the Constitution and the Law on the Organization of the Government of Vietnam. Specifically: the National Assembly decides the annual inflation target expressed through the consumer price index and oversees the implementation of national monetary policy; the President performs duties and authorities as stipulated by the Constitution and laws in negotiating, signing, and acceding to international treaties on behalf of the Socialist Republic of Vietnam in the field of currency and banking; the Government of Vietnam submits to the National Assembly the annual inflation target; the Prime Minister and the SBV Governor decide on the use of tools and measures to implement national monetary policy goals as regulated by the Government of Vietnam.
Specific Authority of the SBV in Implementing Monetary Policy
The SBV Governor decides on the use of refinancing tools, interest rates, exchange rates, reserve requirements, and open market operations to implement national monetary policy.
Regarding interest rate tools, the law stipulates the policy interest rate and the base interest rate to combat usury, ensuring the SBV's capability to manage and implement monetary policy while providing a basis for applying regulations in related laws such as Civil Law, Criminal Law, Labor Law, Law on State Compensation... This is also an important legal basis for the SBV to change the connotation of the base interest rate towards using it not as a basis for credit institutions to set business interest rates but to combat usury in the economy. In case of abnormal money market developments, the SBV regulates interest rate management mechanisms applicable to the relationships between credit institutions and with customers, as well as other credit relationships.
According to this law, the SBV decides on exchange rate policies and management mechanisms. The SBV's authority in implementing monetary policy to stabilize the currency value has been enhanced.
Furthermore, the SBV organizes a statistical and forecasting system on money and banking; discloses information on money and banking activities as stipulated by law; leads the development, monitoring, forecasting, and analyzing the implementation results of the international payment balance; the SBV participates with the Ministry of Finance in issuing government bonds, bonds guaranteed by the Government of Vietnam; the SBV Governor has the authority to establish advisory boards and councils on issues related to the SBV's functions and tasks; SBV's operations are more broadly regulated in case of special loans to ensure early intervention, reducing risks to the banking system...
The role and tasks of the SBV in terms of inspection and supervision are also adjusted to enhance authority in handling risks of credit institutions. Specifically, the law stipulates that the SBV's authority spans the entire process of supervising the safety of credit institutions' operations from licensing, establishing safety regulations, monitoring activities, intervening in case of difficulties, and proactively addressing risks when there's a potential failure. Besides, the provisions of the SBV Law affirm the distinction between banking safety inspection and supervision and regular administrative inspection through establishing principles for banking safety inspection and supervision such as: Inspection and supervision of banking are carried out under the SBV Law and other related laws; in case of discrepancies between the SBV Law and other laws regarding banking inspection and supervision, the SBV Law prevails; the SBV Governor stipulates the procedures for banking inspection and supervision.
Regarding the principles for conducting banking safety inspection and supervision: The law stipulates that banking inspection and supervision involve combining the inspection and supervision of compliance with monetary and banking policies and laws with the inspection and supervision of risks in the activities of entities under banking inspection and supervision. The law expands the scope of supervision to encompass all activities of a credit institution, including activities through its subsidiaries.
The authority of the SBV in early intervention and handling of credit institutions is further specified to promptly prevent potential failures, specifically: the SBV has the authority to decide on special measures for dealing with credit institutions that severely violate monetary and banking laws, face financial difficulties, and pose risks to the banking system, including purchasing shares of the credit institution; suspending, temporarily suspending, dismissing managers or executives of the credit institution; deciding on mergers, consolidations, and dissolutions of credit institutions; placing credit institutions under special control; performing duties and exercising authorities under the legal provisions on bankruptcy for credit institutions. Besides, to ensure discipline in banking activities, the institutions and authorities of the SBV over credit institutions are clearly specified in the SBV Law.
State management authority over deposit insurance: Deposit insurance activities closely align with banking activities and depositors at credit institutions. To ensure a state authority performs state management functions on deposit insurance, the law provides a principle-based provision on the SBV's authority over deposit insurance: “State management of deposit insurance according to the provisions of deposit insurance law” (Clause 14 Article 4).
Regarding capital contributions to establish enterprises: The law provides for the SBV to use statutory capital to contribute to the establishment of special-purpose enterprises to perform SBV's functions and tasks as decided by the Prime Minister of the Government of Vietnam. The SBV does not invest capital in enterprises outside of its functions and tasks. Capital contributions to establish enterprises aim to perform certain functions and tasks of the SBV, not for profit-making purposes (such as establishing the national money printing factory, contributing capital to the national card switching company, etc.).
Regarding the opening of State Treasury accounts: To ensure the SBV always has complete, accurate data on the SBV's deposit and lending relationships with the State Budget for effective and tight monetary policy management, the law stipulates the opening of State Treasury accounts at the SBV. Accordingly, as a principle, the State Treasury must open accounts at the SBV. In provinces, centrally-run cities, districts, urban districts, district-level towns, and provincial-level cities without SBV branches, State Treasury transactions with the SBV are executed as regulated by the SBV.
Regarding transparency and accountability: The law clearly stipulates the responsibility of the SBV to report and account to the National Assembly, the Government of Vietnam, and the public. This is a new and important provision in the operations of the Central Bank to make its decisions transparent and public not only to the superior authorities but also to the public and the market.
Moreover, as a management agency participating in macroeconomic advisory, the SBV's information sources are crucial for policy making, market evaluation, and decision making. The law specifically stipulates the obligations of individuals and organizations to provide information and data to the SBV.
The enactment of the SBV Law of Vietnam in 2010 by the National Assembly marks an important milestone and a new developmental step in completing the institutional framework for the organization and operations of the SBV according to market mechanisms, closer to international practices and standards, meeting the requirements of fulfilling the SBV's functions and tasks in economic integration. In a press interview, Dr. Nguyen Van Giau - SBV Governor said: “The design in the SBV Law 2010 more clearly reflects the position of the SBV as an agency equivalent to a Ministry of the Government of Vietnam, while clearly defining the functions and tasks of the SBV as the Central Bank of the Socialist Republic of Vietnam, performing state management functions in the fields of currency and banking activities, thereby affirming the close relationship between the two important functions of a Central Bank: Implementing monetary policy and supervising the safety of the credit institution system. This is a crucial aspect proven by recent financial crises in various countries. The organizational structure, staff, and operational mechanisms are designed and built to ensure the simultaneous execution of both aforementioned functions.”
Source: vietstock.vn
