The central bank argues that the permission is a measure to prevent “hot money flows,” or flow of funds from one country to another to earn short-term profit on interest rates differences, from entering the exchange market. It is also a way to ensure the legal rights of non-residents present in the country, it said.
The draft, released on July 4, has thus far received positive feedback from commercial banks and other credit institutions. Directors at a majority of the banks consider the circular a significant improvement over previous regulations, the SBV has reported. They said the new rules can help attract another source of capital and utilise idle capital from expatriates working in Vietnam.
Furthermore, by allowing foreigners to switch from using a current account in VND or foreign currency to using term deposits, authorities will also find it much easier to control the flow of capital from this group.
It is hoped that with interest rates on deposits in foreign currencies at zero percent, the five to eight percent interest rates for deposits in VND will motivate more people to deposit their savings in the local currency.
The central bank said that previously, non-resident foreigners in Vietnam were only allowed to open current accounts in VND or foreign currencies, so the new circular will also help advance the government’s aim to move towards a national cashless payment system, and better control foreign currency flows.
The draft circular defines non residents as individuals present in Vietnam for 12 months or less, who are currently working, undergoing medical treatment, travelling for recreational purposes, or any employees of foreign embassies, organisations and companies in Vietnam regardless of time limit.
At present, the SBV is trying to alleviate pressure on interest rates by increasing liquidity in the money market.
This has happened because the central bank has purchased more foreign currencies to increase its reserves, according to a second quarter report by the Vietnam Institute for Economic and Policy Research (VEPR).