|To become a regional and international financial center we have to build the mechanism and policies to attract the best experts in foreign exchange trading in the world to Vietnam, rather than only to other centers like New York, London, Tokyo.|
JOURNALIST: - What do you think about the strategy that will turn Ho Chi Minh City into a regional and international financial center?
Dr. TRUONG VAN PHUOC: - Ho Chi Minh City used to be the center of Southeast Asia, hence, it is reasonable to dream of becoming a regional and international financial center to compete with other international financial centers like New York, London, Tokyo and Singapore in next 5-10 years or in the longer term. However, the question is how to make this plan more feasible?
This strategy should be done by involving the whole country, rather than just by the City only. Ho Chi Minh City wants to make a breakthrough, but it needs the support of the government. It should remember that the true strategy is to make Vietnam the regional and international financial center, in which Ho Chi Minh City is a hot spot, rather than to make Ho Chi Minh City the regional and international financial center alone. Of course, Vietnam needs to find a specific location to label it on the global financial map and it is definitely Ho Chi Minh City.
- In order to develop and compete with other regional and international financial centers, what policies and mechanisms should Vietnam and Ho Chi Minh City have to attract more investors?
- I have an example. We previously were used to travelling by traditional taxis. However, Uber and Grab have beat the traditional taxi companies by their differentiations. It takes only few seconds to order a taxi by using their applications. The clients receive the feedback in 1-2 minutes with all details about the driver’s name, driver’s phone number, car number. The price is also cheaper than the traditional taxi. This example shows that, to make Vietnam or Ho Chi Minh City become a regional and international financial center, we need differentiations and need to be outstanding. And of course, to achieve this, we have to scarify some other things. I think the outstanding character of Vietnam as compared to other centers is the legislation and the mechanism.
- Could you please explain further?
- The financial market includes two smaller markets which are money market and capital market. While the money market is for shorter funding, the capital market supplies the mid and long term capital for the economy. We have to separate these two markets to improve the competitiveness.
For example, a form of money market is interbank market, and we should have the mechanism to increase the liquidity and reduce the barriers of this market, also allow the banks to be responsible for depositing and lending their short term funds. Besides the money market, we also have foreign exchange market which is for trading in foreign currencies in both domestic and international arenas.
We should have mechanisms which allow foreign investors to establish the companies in Vietnam to trade in foreign currencies without constraints and control. They can do the normal business in the international market like buying JPY and selling USD. We should also build a mechanism and policies to attract the best experts in foreign exchange trading in the world to come to Vietnam, rather than only go to other centers like New York, London, Tokyo. For example, we should have lower income tax rate.
If we can do that, most Vietnamese will acknowledge foreign currencies, their value and interest rates. Furthermore, we should allow the money market to apply derivative tools.
A corner of Thu Thiem peninsula seen from above. Photo: HOANG HUNG
In regards to the capital market, we firstly need to create the conditions for the development and the upgrade of the stock market. Vietnam stock market is currently considered the frontier market and we need to upgrade it to emerging market. To do this, Vietnamese enterprises must make financial reports in English, and the stock market needs to allow the application of derivatives.
In our current stock market, investors can only buy the stocks and wait for them to go up. We do not allow investors to short sell the stocks as Vietnam lacks the derivative tools to do that. We need to have futures and options. These current weaknesses make our capital market less competitive.
The other thing that is very important for the success of the capital market, is VND must be freely exchangeable. Until now, China has still not been successful in making the CNY accepted worldwide and freely exchangeable. Because of this, most experts in US say that China finds it hard to make Shanghai become an international financial center. It will be high risk for foreign investors if the domestic currency is not freely exchangeable.
In Vietnam, we have done half of it. The 2015 ordinance on foreign exchange, the Decree 131 dated 18 October 2005 and other decrees and resolutions of the government only allow the current account transactions to be free, not the capital account transactions. The free current account transactions mean that VND is 50% freely exchangeable. If we allow the capital account transactions to be free, the VND will be 100% freely exchangeable.
Current account transactions are short-term and actual transactions. The current account transactions include imports, exports, money transfer of citizens for education and healthcare. Capital transactions are transactions which alter the nation’s foreign assets or liabilities and currently in Vietnam these capital transactions are not freely transacted.
To conclude, Vietnam needs to speed up this process. To make VND become freely exchangeable, we need to create demand of VND in the international market. We can create supply by printing money. However, to create the demand of VND, we have to force the enterprises to use VND.
For example, when an exporter exports its products to US and the sales are USD 1mn, this exporter is not allowed to receive USD 1mn in its account. The exporter is only allowed to receive VND 23bn (assuming USD 1=VND 23,000). By applying this method, the US importer has to sell USD 1mn in foreign exchange market to get VND 23bn to pay to Vietnamese exporter. All these transactions will be done through the Clearing System of the State Bank of Vietnam. Accordingly, the importer still equivalently pays USD 1mn but we create the demand to use VND in Vietnam.
To make Vietnam becoming the regional and international financial center, Vietnam needs to have outstanding conditions, mechanisms and policies.
- Thank you very much.