Tighter Foreign Currency Management

Since June 2^nd 2011, the maximum USD interest rate applied for entities of residents and organizations of non-residents (except for credit institutes) is 0.5 percent, and for non-residential individuals, 2 percent per year.

The maximum USD deposit rate has been identified, including promotional costs in all forms and applied for the form of interest paid at maturity; other forms of interest paid have to be converted into corresponding form of interest paid at maturity with maximal mobilization interest rate.

 

To strengthen the validity of the regulation, the State Bank has required credit institutes to take the responsibility of publicly quoted interest rate on capital mobilization in USD in sites according to State Bank regulations; at the same time, prohibiting financial institutes from promoting mobilization in cash, interest rate and other forms which are illegal.

 

As for individuals and organizations with interest rate on loans of terms in USD emerging before June 2^nd, it allows the previous rate to remain till the end of the negotiated term.

 

With the aim of tightening foreign currency management, curbing inflation and stabilizing the macro-economy, the State Bank has extended the subjects (economic groups, state corporations) which are under supervision of regulations on selling and buying foreign currency.

 

According to the initial regulation, only seven state corporations were responsible for re-selling foreign currency to banks. Meanwhile, since July 1^st, economic groups, state corporations including their member enterprises state-funded with over 50 percent of capital as regulations in Law on Enterprises and not credit institutes, have to carry out the duty of selling foreign currency to credit institutes.

 

In addition, every month, the above economic groups and state corporations take responsibility of self-balancing source of foreign currency input and legal need of using foreign currency and selling the rest to allowed credit institutes. When the demand exceeds the current balance in the deposit account of foreign currency and foreign currency input, in the limit of total amount of foreign currency sold to allowed credit institutes, the organizations can re-buy the amount of foreign currency in need to use legally.

 

Economic groups and State corporations can re-buy foreign currency from the credit institutes which they sell before with the duration of re-buying of one year since the month of selling. In the case that the enterprise is still in need of foreign currency despite buying up the amount sold before, the trading of foreign currency will take place in the shadow of negotiations among parties and observation of current related regulations on foreign exchange.

 

Also according to regulations in this Circular, the organization has the right to reserve in a deposit account of foreign currency the amount of foreign currency from legal sources in the month to serve the using need, which requires proof on the legal using need in the month, and can transfer foreign currency in different credit institutes when the foreign currency input in the month and existing foreign currency balance in allowed credit institutes are not enough to meet the legally registered using need in the month.

 

Experts said the State Bank continuing to reduce interest rate on capital mobilization in USD by one percent, or relatively extending the subjects which are forced to sell foreign currency to credit institutes. At present, the market starts settling down after the State Bank implemented the first measure package. These regulations are actually sterner measures that help increase activeness in foreign exchange management, especially USD, to limit dollarization which often occurs at the end of the year.