MONETARY

POLICY IN VIET
NAM
MEMBERS:
[Link] Van To
2. Tran Le Hang
3. Nguyen Ha Linh
OVERVIEW OF
MONETARY The role of monetary policy
includes
POLICY 1 Controlling inflation: Ensuring stable prices, preventing
runaway price increases or deflation.

Macroeconomic stability: Supporting supply-demand

2
balance, maintaining stability for financial markets.

3 Promoting economic growth: Creating a favorable

environment for production, investment and
consumption
OVERVIEW OF MONETARY
POLICY
In Vietnam, monetary policy plays a
central role in responding to economic
fluctuations, from domestic (such as
price control, credit stability) to
international (such as the global
financial crisis).
MONETARY TIGHTENING
Monetary Tightening is the State
Bank's reduction of the amount
of money in circulation and
increase in borrowing costs to
control inflation or prevent asset
bubbles.
MONETARY
EXPANSION
Monetary Expansion is the State
Bank's increase in the amount of
money in circulation and reduction
in borrowing costs to stimulate
economic growth or deal with
recession.
 2. Tools for
implementing
monetary policy in
Vietnam
The State Bank of Vietnam (SBV) uses
monetary tools to achieve the goals of
controlling inflation, stabilizing the
economy, and promoting growth:
DISCOUNT RATE: CREDIT LIMIT:
Discount is simply understood as a price The credit limit is the maximum outstanding
concession in business. The discount rate is balance that the State Bank requires
the lending interest rate of the State Bank to commercial banks and credit institutions to
Commercial Banks (CBs) to meet short-term accept when granting credit to the economy.
or unusual cash needs of CBs. The discount Simply put, the State Bank regulates the
rate tool does not directly affect the money maximum lending level of commercial banks
supply but indirectly affects production and and credit institutions, directly affecting the
business activities. money supply of the economy.
For example, if the discount rate decreases, For example, when the State Bank regulates
CBs borrow money at lower interest rates, that commercial banks and credit institutions
and CBs' lending interest rates also can only lend up to 90% of the mobilized
decrease. Businesses that are not burdened capital, commercial banks and credit
with interest have more money to expand institutions are forced to accept this
their business, creating conditions for future regulation. If they mobilize 1,000 billion VND,
development. they can only lend up to 900 billion VND.
RESERVE RATIO:
The reserve ratio is the ratio between cash and deposits of
commercial banks or credit institutions. This ratio is regulated by
the State Bank, forcing commercial banks and credit institutions
to comply. In which, deposits are the amount of money mobilized
by commercial banks, cash is a small part of the mobilized
amount retained by commercial banks in the form of cash at the
bank.
The reserve requirement ratio is set to ensure the liquidity of
commercial banks. Commercial banks can hold cash equal to or
greater than this ratio and cannot use it for other purposes.
If this ratio increases, the money supply decreases. Conversely, if
this ratio decreases, the money supply increases. The State Bank
uses the reserve requirement tool to control and regulate the
money supply in the economy.
OPEN MARKET OPERATIONS:
This is the activity of buying and selling short-term valuable
papers (bonds, stocks, etc.) on the money market of the State
Bank. In fact, this activity often occurs between the State Bank
and commercial banks or credit institutions. When the State Bank
buys valuable papers, the money supply increases, and when the
State Bank sells, the money supply decreases.
EXCHANGE RATE:
Exchange rate represents the purchasing power of one national
currency compared to another. It represents the purchasing
power of domestic currency and the supply-demand relationship
of foreign exchange. Exchange rate policy affects many areas in
the economy such as import-export, securities, domestic
production and business, international payments, etc.
In essence, exchange rate does not directly or indirectly affect
money supply, it is not really considered a monetary policy tool.
However, in countries with transition economies, this is an
important support tool for implementing monetary policy.
RECAPITALIZATION:
Recapitalization is a form of credit provided by the State Bank to
commercial banks. When a commercial bank needs money, it can
borrow from a commercial bank or another organization, or it
can also borrow from the State Bank at a more attractive
interest rate. When the State Bank recapitalizes commercial
banks, the money supply increases and vice versa.
 Current status of monetary
policy in Vietnam
Inflation Control Interest Rates Credit Growth Exchange Rates
Policy Interest Rate (Refinancing Credit Growth Target: For 2024, the VND/USD Exchange Rate: The Vietnamese
Target Inflation Rate: The SBV aims to dong (VND) has been relatively stable,
rate): As of 2024, the SBV's SBV set a credit growth target of
maintain inflation at a target of around with the VND trading around 23,500 -
refinancing rate is 6.0%. This is the around 12-14%. In 2023, credit
4% annually. In recent years, inflation key rate that the central bank uses to growth was approximately 13.5%,
24,000 VND/USD as of 2024. The SBV has
has been relatively stable, with the allowed for some flexibility in the
provide liquidity to commercial banks. which is in line with the economy's exchange rate while intervening in the
official inflation rate for 2023 at 3.4%. Discount rate: The current discount overall growth expectations. This is foreign exchange market when necessary
Inflationary pressures, primarily from rate stands at 4.0%, which is the rate a manageable level, designed to to prevent excessive volatility.
food prices and global supply chain at which the SBV lends to commercial support economic recovery without SBV Interventions: The SBV has used
disruptions, have been managed, but it banks against collateral. risking overheating or excessive foreign reserves to stabilize the dong
remains a challenge, especially in the Lending rates: The average lending inflation. when needed, but it has generally
rates in Vietnam generally range The SBV has been cautious in maintained a cautious stance on major
context of global price volatility.
between 7% - 10% for short-term controlling credit growth, especially currency fluctuations.
loans, and 10% - 12% for medium- to in sectors like real estate, which
long-term loans, depending on the
has seen rapid expansion and
creditworthiness of the borrower.
potential risks of asset bubbles.
Money Supply and Liquidity Digital Currency (CBDC)
Money Supply Growth: The growth rate of M2 Vietnam is actively exploring the concept of
(broad money) has been targeted at around 12- a Central Bank Digital Currency (CBDC). The
14% annually. M2 growth in 2023 was about SBV has announced plans to pilot digital
13.1%, which is in line with the SBV's target. currency trials, although no formal rollout
Liquidity Support: The SBV continues to inject has occurred yet. The use of digital payments
liquidity into the banking system through open and electronic money continues to grow
market operations, ensuring that commercial rapidly in the country, with significant
banks have sufficient reserves to lend to increases in the use of e-wallets and mobile
businesses and households. payments.
Challenges of monetary policy in Vietnam
Coping with external fluctuations Vietnam's monetary policy faces major
challenges from external factors such as oil price fluctuations, trade wars, and
the monetary policies of major economies. (USA, China). Rapid changes in the
USD exchange rate and global macroeconomic factors can negatively affect
the Vietnamese economy, especially when it depends on import-export and
foreign investment capital flow outside.
Inflation pressure from domestic factors Although inflation has been
controlled quite well, inflation pressure from domestic factors (such as raw
material prices, operating costs, and consumer demand) is still high. concerns.
Without reasonable intervention measures, inflation can increase, affecting
people's lives and destabilizing the economy.
Risks to credit quality Bank credit in Vietnam in recent years has developed
strongly, but credit quality is still a concern. Some bad debts still exist in the
banking system, especially at state-owned commercial banks. This could
affect the ability of banks to provide credit to the economy and pose risks to
the financial system.
The economic structure is still weak and uncompetitive. Vietnam's economic
structure still depends heavily on industries that consume resources and
export raw materials, while deep processing and industrial industries. High
technology has not yet developed strongly. This affects the ability of the
Vietnamese economy to adapt to fluctuations in financial and currency
markets.
Financial issues in state-owned enterprises State-owned
enterprises in Vietnam still account for a large proportion of the
economy and influence the national financial situation. Some
state-owned enterprises still operate inefficiently, have high bad
debts, and lack transparency in financial operations. This creates
pressure on banks and the national financial system.
Interest rate and credit policies are not completely flexible.
Although the State Bank of Vietnam has adjusted the basic
interest rate to affect the deposit and lending rates of banks,
sometimes this change is not truly flexible. and timely with
changes in the economy. Insufficient control of interest rates can
lead to asset speculation, as well as increase the capital cost of
businesses.
2.4 FUTURE DIRECTION OF MONETARY POLICY IN VIETNAM
Long-term goal:
Stabilize the macroeconomy and control inflation
below 4%/year.
Support sustainable growth for the economy,
especially small and medium-sized enterprises.
Improve credit quality and reduce bad debt in the
banking system.
Develop synchronous financial markets, enhance the
ability to mobilize capital for the economy.
Technology application:
Digital Currency (CBDC): Central Bank Digital Currency
Research and Testing.
Electronic payment: Encourage the development of
mobile payment systems and e-wallets.
AI and Big Data: Using technology to forecast the
economy, monitor risks and operate monetary policy
more effectively.
Digital banking: Enhance online banking services,
reduce costs and improve service quality.
 REFERENCES
1. Viện Nghiên cứu và Đào tạo Việt Nam. (n.d.). Chính sách tiền tệ. Truy cập
ngày 18 tháng 11 năm 2024, từ [Link]
2. Team, T. I. (n.d.). Monetary policy meaning, types, and Tools. Investopedia.
[Link]
3.
4.
5.
THANK YOU!