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1 INTRODUCTION Rationale In recent years, Vietnam has promoted the process of international economic integration Along with the process, monetary financial transactions increase both in size as well as in diversity and complexity A more equal and more competitive market applying international practice rules will be formed, towards the integration roadmap Structure and scale of "financial intermediary” types - with the emergence of foreigncapital financial institutions participation in the market will change Banking activities will become more dynamic and complex, in which all kinds of potential risks in this business will be more difficultly identified Money market (MM) plays a particularly important role in mobilizing savings, allocating capital efficiently in order to ensure the competitiveness of an economy and promote socio-economic development In the process of Innovation, a financial market has been gradually established and developed Theoretically, developing the MM is crucial to form the structure and motivations for the operation of any market economy Therefore, the MM is always a top concern of economic strategy in all countries around the world The development of MM in Vietnam is still initial and at a low level Meanwhile, the integration into the region and the world requires any country to have a strong enough MM along with a high level science and technology, the abundance and diversity of products, with qualified and professional staff This situation poses new issues and challenges to be solved Therefore, research activities to find recommendations and solutions for the development of the current MM in Vietnam are very essential Based on those needs, I have chosen the title “The development of the money market in Vietnam after joining the World Trade Organization" for my doctoral dissertation in economics Literature review In the process of international economic integration and financial liberalization, many studies have summarized solutions needed to enhance the MM development in terms of improvement of the components of MM, flexible operating the monetary policies, and strengthening the supervision and synchronization between Monetary Policies and Fiscal Policies In general, the foreign study on MM in Vietnam is still relatively limited in number However, there are also a number of research studies on MM conducted in the regional countries as well as in the economies which has been transiting from subsidized to market (transition economy) In other words, the characteristics of the economy in general and the development of the MM in particular in the countries are quite similar to those in Vietnam Thus, the studies help provide the valuable theoretical problems and lessons learned for the MM development in Vietnam There are some other studies on the development of MM in the context that Vietnam has been involved in the international integration process in trade, services and financial banking However, most of those studies only referred to the integration requirements of the banking system following the roadmap of signed agreements There is still a gap to be filled on the study side on the impacts of the Vietnam’s accession to WTO for the development of the MM in Vietnam Through scientific study research, I have gathered some theoretical and practical issues regarding analyzing and synthesizing various aspects of MM and each component market based on the purposes, subjects and scope of each research project However, researches on the development of the MM in Vietnam after joining the WTO have not been published the current situation and solutions under the scientific perspective of political economy, in a comprehensive theoretical and practical basis This dissertation studies the current MM in Viet Nam to propose recommendations and solutions for the next phase - the period after Vietnam joined the WTO This is the first scientific study on this issue, so there is no duplication with the previous published ones Study purposes - Contribute to interpreting the theoretical and practical basis of the development of the MM in Vietnam after joining WTO - Analyze the state of the MM in Vietnam over the recent activities of the State financial banking system, and point out the achievements, limitations and the causes of the limitations in the process of formation and development of the MM - Propose consolidated views and solutions for MM development in Vietnam after joining WTO Study subjects and scope Study subject of the dissertation is the development of the MM in Vietnam, in the context that the economy is being operated in the regional and global integration process, especially after Vietnam joined the WTO The development of the MM is a general theme that involving many fields Thus, this dissertation is limited to the contents within the activities of the MM for the credit institutions in Vietnam In particular, the dissertation mainly focuses the interbank MM and open market in Vietnam in the period after the accession to WTO Study methodology Dialectical Materialism and Historical Materialism are the rationale and methodology for conducting this study Dialectical Materialism methods were applied to consider the necessity of the development of MM in Vietnam after joining WTO The study also uses the analysis and synthesis, comparative, and statistical methods to explore the subject, combined with economic analysis of survey data at the Vietnam commercial banks in recent years Scientific contributions of the study On the theory side: Systematic overview about the MM, analyze the basic characteristics, structure and role of the MM in the economy Analyze the contents and the factors affecting the MM development in Vietnam after WTO accession On the practice side: Assess the situation of MM in Vietnam in recent years; analyze the operational mechanism, relationship between the component markets, the impact of macroeconomic management process; then propose solutions to develop the MM in Vietnam after being a WTO member Study structure In addition to the introduction, table of contents, and references, this Dissertation consists of three chapters which are as follows: Chapter 1: Rationale for the development of the MM after WTO accession Chapter 2: Current status of the MM in Vietnam after WTO accession Chapter 3: Orientation and solutions for the development of the MM in Vietnam * * * CHAPTER RATIONALE FOR THE MOMEY MARKET DEVELOPMENT AFTER WTO ACCESSION 1.1 Overview of monetary and MM 1.1.1 General theoretical issues of monetary 1.1.1.1 Concept and functions of money Monetary is a special commodity, which is different from all other goods and considered as a general price level object for all goods It represents social works and reflects the social relations of production, the relationship between goods producers Money has functions which are measure of value, medium of transactions, medium of account, medium of store and a world monetary 1.1.1.2 Supply and demand for money The Central Bank is the state agency responsible for providing money for the economy, balancing the money supply and demand for stable MM, prices, production, circulation, etc The Central Bank does operational measures to withdraw money from circulation when the inflation signs occur, or to provide more money into circulation when it shows degradation By increasing or decreasing the money supply, the Central Bank regulates economic activities 1.1.2 Basic concept of MM 1.1.2.1 MM definition MM is a wholesale market with short-term debt instruments, low risk and high liquidity In other words, MM is the market of buying and selling short-term debt instruments can be transferred in one year or less than one year Under Article 9, Amendment of the Law on the State Bank (2003): "MM is a shortterm capital market where buying and selling short-term commercial papers, including treasury bills, bank bills, documents of deposits and other commercial papers" According to Article 6, State Bank Law (2010): "MM is a place of short-term capital transactions" 1.1.2.2 MM characteristics Although the characteristics of MM vary among countries, there are six common features First, MM goods are mainly short-term securities, referring to short-term commercial papers, having very high liquidity Second, the exchange in the market is to meet capital needs or to the profitability Third, the "commodity prices" is the MM interest rate for traders to buy, sell or borrow, lend mutually agreed by the parties under the law on supply and demand on short-term capital and short-term securities Fourth, this market has the participation of many members including the Central Bank Fifth, the current MM does not take place in a specific address but a common concept about the interaction of supply and demand for the price of each type of debt securities Sixth, it is statistical significant that the MM is a wholesale market with the huge volume of transactions 1.1.2.3 The role of MM in the socio-economy MM is highly developed in countries with market economies, in terms of economic theory An active MM with perfect organization brings many benefits not only to commercial banks, but also to financial institutions, businesses and the whole economy In the market economy, the MM development is a factor to promote the development of commodity production and circulation on a national scale, and somewhat expand to international scale 1.1.2.4 MM structure MM playground is the system constituted by the component markets, including the interbank MM and expanded MM The MM in the financial system are described as follows: FINANCIAL MARKET MM INTERBANK MM INTERBANK MARKET FOR DOMESTIC CURRENCY CAPITAL MARKET EXPANDED MM INTERBANK FOREIGN EXCHANGE MARKET BOND MARKET COMMERCIAL PAPER MARKET SHARE MARKET CREDIT MARKET Chart 1.2: The MM in the structure of the financial market system 1.2 Contents of MM development after WTO accession 1.2.1 Theoretical basis for MM development after WTO accession 2.2.1.1 Concept of MM development Basically MM development is a general issue which consists of variable concepts A high-level developed market economy pushes its MM development to the same level Component markets are formed naturally under that theory In fact, positive acts from the State through legislation system and policies promotes the establishment and development of component markets 2.2.1.2 Relationship between component markets of MM Components of MM, so called component markets have strong relationship with each other This relationship is created by the capital flows between the component markets Changes in the market will generate capital flows and affect the interrelationship between supply and demand, leading to the change of indexes that reflect activities of other related markets 2.2.1.3 Rationale of MM development The fact of the relationships among component markets and between MM and other markets is the rationale to consider MM developments under the capital flows in the economy This analysis of the component markets is a theoretical basis for MM development, especially in the period after Vietnam joined the WTO, the MM in Vietnam have integrated into the international MM 2.2.1.4 Criteria of MM development a-Mobilizes temporarily idle capitals, creating short-term supplies for the economy b-Promotes capital demand and creates liquidity in the market c-Stabilizes and regulates monetary circulation, regulates short-term capitals among financial, non-financial and governmental intermediaries d-Continuously refresh the system and operation mechanism of the MM to be in line with international practices - Develop interbank market for domestic currency - Create operation mechanism for the MM 1.2.2 Conditions of MM development after WTO accession 1.2.2.1 Level of socio-economic development MM was formed by the economy and when the MM operates, the economy is motivated to develop stronger The MM will only be adequate and consolidated if it meets all objective economic conditions, especially the development of other markets such as markets of goods, real estate, labors and capital 1.2.2.2 Economic laws and policy system Although all the objective economic conditions are met, MM is indeed only established and develops after the intervention of the State through legal documents Therefore, there are many legal documents regulating factors arising in the market such as Civil Law, Corporate Law, Investment Law, Financial Law, Securities Law, etc It is not denied that the system of synchronized, strict and practical legislation is a sufficient condition for the MM development In contrast, an overlapping, outdated and flawed legal framework would be a huge barrier affecting the development of the market 1.2.2.3 Capacity of banks Banking system holds a great influence to the operation of MM A banking system model which based on economic theories suitable with each country picture as well as with the development purposes of the period is a strong motivation to develop the MM in particular and the financial market in general 1.2.2.4 Level of development of relevant markets - Goods and services market - Real estate market - Financial market 1.2.3 The necessity of development of MM after WTO accession Being a member of WTO requires any country to promote the MM development This is absolutely the objective need because of: 1.2.3.1 Requirements to proactively seize opportunities and actively cope with challenges after WTO accession One of the purposes of the integration process into international economic is to expand the market, taking advantage of additional capital, technology, knowledge on management to serve the industrialization and modernization of the country After WTO accession, one of the important issues is commitment to open the services market for foreign investments, including the financial sector and banking Adhering the commitments regarding the national treatment rules, so that foreign banks are treated equally with domestic banks, and are allowed to raise domestic currency will bring difficulties to the local banking system 1.2.3.2 Development of MM is to meet capital needs for economic growth and development As an important part of the financial market, MM has a very important role in regulating supply and demand on short-term capitals to support the producing, business and services, subject existences in the society, as well as to create favorable conditions for balancing capitals between commercial banks, to help enterprises protect their capital and ability to pay In addition, the State Bank, through MM operation, carries out the regulation of the currency at national level to implement the proposed monetary policies at each stage of national economic development 1.3 Experience on developing MM in some countries after WTO accession and lessons for Vietnam 1.3.1 Experience on developing MM of some countries after WTO accession 1.3.1.1 Experience on developing MM in China 1.3.1.2 Experience on developing MM in Japan 1.3.1.3 Experience on developing MM in Singapore 1.3.1.4 Interbank money market of England 1.3.1.5 Interbank money market of Germany 1.3.1.6 Interbank money market of Europe 1.3.1.7 Interbank money market of the US 1.3.1.8 Some characteristics of MM in developing countries 1.3.2 Lessons learned to apply for Vietnam * * * CHAPTER CURRENT STATUS OF THE MONEY MARKET IN VIETNAM AFTER YEARS OF WTO ACCESSION 2.1 Overview of MM development in Vietnam 2.1.1 Establishment and development history MM has been set up in the financial structure in Vietnam since 1993 Although the whole market is not yet developed, the constituent parts of the MM have been formed at a certain extent This section will consider the state of the MM consists of 05 parts based on activities of the subjects in the market, which are: The first is the interbank market for domestic currency; The second is the interbank foreign exchange market; The third is the short-term commercial paper market; The fourth is the credit market; and The fifth is the regulatory activities of the State Bank 2.1.2 Commitments about monetary after being a WTO member Developing the MM is to implement the commitments of Vietnam with WTO in banking and monetary circulation Foreign banks are currently can expand their scope and type of service providing, which equal to the Vietnamese banks Accordingly, since st April 2007, besides representative offices, branches of foreign banks and commercial joint venture banks; it is allowed to set up 100% foreign-capital banks in Vietnam As committed, the Vietnam Government issued Decree No 22/2006/ND-CP dated 28/2/2006 provisions: (1)- In order to open a foreign bank branch in Vietnam, the parent bank must have total assets of more than $20 billion at the end of the year prior to the opening of branches (2)- To set up joint venture banks or banks with 100% foreign capital, the parent bank's capital must be at least $10 billion; (3)-In order to open financial companies with 100% foreign capital, venture finance companies, financial leasing companies, a must for the enterprises is to have total assets of more than $10 billion at the end of the year prior to applying Increasing participation of banks with 100% foreign capital in the market will change the market share of domestic banks activities in near future, because banks with 100% foreign capital are now treated equally with domestic banks The foreign banks are allowed to operate within areas as follows: (1)- During the years from the WTO accession, Vietnam may limit the rights of some foreign bank branches to accept deposits in Vietnamese Dong from Vietnamese citizens with which the bank does not have a credit relationship to a ratio of the branch's allocated capital Accepting deposits of institutions made unlimited, but personal deposits will increase over time, from 01/01/2007 at maximum of 650% of the legal capital of the bank, towards full national treatment in 2011 (2)-On trading network: A branch of a foreign commercial bank is not allowed to open other transaction points outside its branch office, but is permitted to install and operate ATM and issue credit cards as domestic banks (3)-For capital contribution in the form of buying shares, total equity held by foreign institutions and individuals in each of Vietnam’s joint stock commercial bank may not exceed 30% of the bank's chartered capital, unless otherwise provided by Vietnam’s laws or authorized by a competent authority of Vietnam (4) At least 20% of managers, executives and specialists must be a citizen of Vietnam However, a foreign company will be allowed to have a minimum of managers, director of executives and specialists who are not Vietnamese 2.1.3 The state of component markets in the MM model in Vietnam After being a WTO member, the State of Vietnam has built, adjusted and added regulations on business conditions in the banking sector, to be in line with WTO commitments in the banking sector as well as with the increasingly complex changes in the international financial and MMs Law on Credit Institutions 2010 regulated credit institutions are allowed to participate MM (Article 104) held by the State Bank, including treasury bills auction market, interbank domestic and foreign exchange market and other commercial paper markets under the provisions of the State Bank According to this, interbank domestic currency market is the credit market (both domestic and foreign currency) among credit institutions, and the interbank foreign exchange market is the foreign exchange market or market to buy or sell of foreign currency In the period 2006 - 2012, the MM varied drastically, posing many potential risks in banking operations Regulatory role of the State for the MM through monetary policy had a huge impact on the development of the entire economy, as well as the market system, including MM VIETNAM MONEY MARKET Interbank market for domestic currency Interbank foreign exchange market Short-term commercial paper market Short-term credit market Chart 2.1: MM model in Vietnam (MM development project of the State Bank) 2.1.3.1 Current status of interbank MM in Vietnam In recent years, although facing many difficulties in operating conditions in an transiting economy to market mechanism and being under an unstable business environment, the operation of the interbank market has been more dynamic, positive and consistent with the overall development of the economy as well as the development of operations at credit institutions (1)-Interbank market for domestic currency During the past years (the period after Vietnam joined the WTO), in the context of global financial crisis and difficulties of the world economy in general and in Vietnam in particular, the interbank MM has more complex movements With the direct 10 interventions and management of the State Bank that restructuring the banking system, the MM is gradually back to a stable development (2) Interbank foreign exchange market (foreign exchange market) With the goal of macroeconomic stability, inflation control and supporting economic growth at a reasonable level, the State bank has always regulated the basic indexes such as exchange rate, interest rate, etc to maintain a stable exchange rate, raising the value of domestic currency, and prioritize export over import activities In particular, since 2011, the State Bank to intervene to stabilize the foreign exchange market to maintain exchange rate stability 2.1.3.2 Current status of expanded MM It can be seen that the open market has taken an active role in the implementation of national monetary policy, which help control the national inflation and ensure liquidity of banks, to maintain security and sustainability of the banking system Although the scale of operations, sales and the number of members of the market has increased over time, there are still many limitations in terms of mechanisms, policies, products, etc to be fixed for the market development (1)- Status of short-term commercial paper market - Market of buying and selling commercial papers between the State Bank and credit institutions through open market operations - Treasury bills market - Market of buying and selling time-limited commercial papers among financial institutions (2)- Status of short-term credit market Credit market - a traditional market is currently holding the most important position in the banking system in Vietnam This is proved by its specific operations through borrowing and lending between banks and their customers At the present, credit market still provides a major part of the total revenue of the banks in Vietnam However, it poses many potential risks mainly from the unstable and unconsolidated economy, the business sector, the institutional and legislation system 2.1.3.3 The impact of the WTO accession on the development of the MM in Vietnam focusing on some key aspects The WTO accession in November 2006 drove innovative activities of the Vietnamese MM towards innovations in control of currency, interest rate and exchange rate on the market based instead of administrative control measures As a result, commercial banks accordingly operate more efficiently under the principles of competition and market disciplines with diversification of banking and financial services and application of modern technology In addition, the access to WTO allows direct investment into the banking and financial sector, in order to help domestic banks improve their management competency and get supports from foreign banks 2.2 General assessment of the development of the MM situation in Vietnam in terms of market structure after WTO accession MM in Vietnam is currently at a low level compared with that in the region and in the world The local MM itself segmented, fragmented and divided in groups (State 13 - Seventhly, capital regulatory activities among the banks is inefficient, due to credit institutions in Vietnam not have proactive measures to flexibly regulate capital in their system, and weak public forecast liquidity of banks The market has not promoted the functions to distribute and transfer liquidity among banks according to market signals 2.2.4 Operation mechanism of the market 2.2.4.1 Achievements - Firstly, the State Bank takes the role of management and regulation of the market - Secondly, legal document system has basically created a necessary legal framework for the operation MM activities towards development and integration into the regional and international markets - Thirdly, the interbank offered rate is becoming closer to the market rate and gradually reflects market demand and supply of capital - Fourthly, the operation of market help regulate short-term capital in a flexible manner within the banking system, thereby promoting the efficient use of capital, creating conditions for commercial banks to become familiar with the disposable fund management in the market economy - Fifthly, exchange rate between the USD and the VND in the interbank market for foreign currency meets supply and demand of foreign currency within the provisions of the State Bank 2.2.4.2 Limitations - Firstly, the State Bank operations rely heavily on the Government and the Governmental agencies - Secondly, information about the market and transaction means is not adequate - Thirdly, the transactions among the members are only trust based but mostly not guaranteed - Fourthly, the offered rates for interbank loans and deposits (VNIBOR) announced by Thomson Reuters not reflect market rates - Fifthly, transactions business is still simple, and only applied for direct loans through deposit contract It is rarely applied for modern transaction forms - Sixthly, legal documents for the operation of the market are not in line with each other The communication about laws is not really focused, the benefits of MM are not fully recognized, public awareness of and interest in the MM products has not changed - Seventhly, shortcomings in the loans regulations among credit institutions: The regulations only refer to lending transactions, but not to deposit transactions among credit organizations, even it accounts for up to 80-90% of total volume In addition, the regulations also not mention the loans and deposit among foreign credit institutions The regulations not provide a legal basis to confirm of interbank loans and deposit, so a number of credit institutions concern about the legality of confirmation of these transactions The standard contract has not been regulated in loans and deposit transactions, so each bank now applies a different contract There is also no regulations for the credit institutions to not use deposits on interbank market for long-term loans - Eighthly, codes of conduct in MM has not been issued: The lack of the codes according to standard practice and common standards for transactions (standard interest, 14 standard transaction amount, round number rule, etc.) lead to difficulties to market participants in handling breach of contract - Ninthly, a currency brokerage system is not established - Tenthly, a standard profit curve of government bonds is not developed, as the issued government bonds are not diverse in term of duration 2.2.5 Infrastructure and information technology 2.2.5.1 Achievements - Transactions between the State Bank and credit institutions Currently, MM transactions between State Bank consists of bidding for treasury bills, open market businesses and part of the discount and rediscount of commercial papers and mortgage lending for the banks of the State Bank has connected through software provided by the State Bank (the central trading floor) - Transactions among credit institutions Agreements for the loan, deposit, purchase and sale of commercial papers among institutions are done primarily through phone, while some of them are done through the trading system of Thomson Reuters (decentralized trading), later confirmed by SWIFT (for online transactions on Thomson Reuters) or by fax with confirmation key (for transactions through phone) The foreign exchange among credit institutions are all done through Reuters (centralized trading) 2.2.5.2 Limitations - Infrastructure for the operation of MM is still limited Currently, the credit institutions have not completed focus capital management system at the main office as a basis for trading in the interbank market The State Bank has not developed collect, process and update market information system (interbank loans and deposits, commercial paper trade, etc.) - Exchange via phone between the State Bank and the market members is not considered an official channel and facing difficulties due to time-consuming and wasting human resources 2.3 Overall evaluation of the causes of the achievements and limitations in developing MM in Vietnam 2.3.1 The causes of the achievements - Firstly, the Government authorities issued the documents relating payment transactions of different commercial papers - Secondly, it created a reasonable cost for the traders as well as a reasonable control system to avoid errors and reduce transaction time - Thirdly, the State Bank provide charter capital for the state commercial banks in recent times helped the banks partly improve financial capacity, especially while capital needs of the economy are remaining high and is still increasing, so it demands banks to speed up raising funds to expand loans and credit to a customer 2.3.2 The causes of the limitations - Firstly, there are still barriers in the economic environment to the MM development in Vietnam 15 * State enterprises: most of them are loss-making due to obsolete technology and high product prices, so that they cannot compete with foreign goods Their management are weak and not well adapted to the market economy, still heavily depends on the subsidy, leading to slow capitalization process * Private enterprises with small capital and low technology, operations that are not adapted to the market, and low quality products that cannot be sold leads to debt in a systematic way Those difficulties make the enterprises lose competitions that may lead to their bankruptcy * State management wastes the state budget but does not operate efficiently * Emergence of social evils such as corruption, smuggling, drugs, etc impedes the development of society * The capital income in Vietnam is still low, the savings and consumption are also far different * The operation leaders lack knowledge and operating experiences in the accounting business towards market mechanism * The State has not yet synchronized economic policies to create a fair business environment to promote economic development - Secondly, the dollarization has not stopped but is increasing The increasing dollarization in Vietnam cannot be immediately remedied It is an important cause of withholding of foreign currency that make the interbank market for foreign currency less exciting - Thirdly, the banking legal system is not really consolidated and some issues are not in line with international practice Banking law and policy system currently has a number of limitations It creates the discrimination among different types of credit institutions, among groups of banks and between domestic banks and foreign banks, causing unhealthy competitions That poses a challenge to modify, create a fair and ventilated business environment according to the principles of non-discrimination of the WTO On the other hand, the opening of financial markets in Vietnam will increase the market risk due to the impacts from the regional and international markets Meanwhile, the State bank capacity to operate monetary policy and supervise banking activities is limited - Fourthly, banks ineffectively attract the big amount of cash in circulation The proportion of cash in circulation remains high percentage and a very slowly downward Payment flow outside the banking system is large Cash loan is still quite common This lead to the fact that a large amount of capital floating in the market that should be attracted by the banks - Fifthly, offered rates are not flexible according to market signals so it is not attractive with the customers The interest rate policy is still unreasonable, in which most mobilization apply fixed offered rate but not floating offered rate It makes the depositors concerned about the real interest rate they will receive in the future, while the market for debt instruments is still under-developed and people not strongly believe in the value stability of VND - Sixthly, the owned capitals of the state commercial banks are too small compared to the operation scale of the banks The capitals are also too small than those of the regional 16 banks This is one of the weakest points of the state commercial banks Small owned capitals lead to low capital adequacy ratio of the state commercial banks, which limits the ability to deposit and lending, reduce the possibility of technological modernization, competitiveness, and posing the risks of loss of the safety systems - Seventhly, human resources have not been trained in essential knowledge about professional business and business management - Eighthly, information technology system remains inadequate: Some broad-network credit institutions or stock credit institutions not have an overall online system - Ninthly, the MM information provided by the State Bank on the website is limited: it is difficult to the State Bank to collect information about the MM, especially information about the interbank market * * * 17 CHAPTER ORIENTATION AND SOLUTIONS FOR THE DEVELOPMENT OF THE MONEY MARKET IN VIETNAM AFTER WTO ACCESSION 3.1 Perspective and orientation to develop the MM in Vietnam after WTO accession 3.1.1 Rationale on perspective and orientation to develop the MM in Vietnam after WTO accession 3.1.1.1 WTO accession - Opportunities and challenges for development of MM in Vietnam - Develop the MM to take advantage of opportunities and actively cope with the challenges after Vietnam joined WTO The opportunities Globalization and international economic integration is the objective trend of the times In the context of the current world countries want economic development are linked to the national economy with the world economy In this trend, the integration of Vietnam has gradually brought the economy to become a part of the world economy Thus, Vietnam has much more opportunity for international cooperation, enlist the support of many international organizations, since then, create a peaceful environment and development cooperation This is a prerequisite for the successful implementation of economic innovations to complete the task of industrialization and modernization of the country The challenges First of all, competition will become stronger and more intense Under the impacts of the integration and the progress of information, the border between the markets will fade and the "home advantage" will gradually be removed - Vietnam products will have to compete with regional products not only in international markets but also in the domestic market when the tariffs are lifted The movement of financial flows over the world will become stronger Funds will be ready to flow to places where safe and high profitable - The legal framework of the WTO has become a common one for economies in the world market It widely regulates, including services and investment, intellectual property and are expected to expanding the scope of the upcoming negotiations Integrate into international economic and access to WTO and other international economic organizations means that Vietnam must comply with the obligations of a member, to accept the legal principles of the organization - Economic structure, economic management mechanisms and macroeconomic management apparatus of Vietnam have not adapted to the requirements of economic development - The competitiveness of the economy and the companies is low Indeed, Vietnam's growth rate is higher than other countries in the region, but the gap between Vietnam and those countries has broadened, increasing the risk of lagging 3.1.1.2 Socio-economic context of Vietnam after WTO accession and the requirements of MM development 18 Firstly, there is an opportunity to exchange and cooperate in financial and monetary issues, developments and macro strategies and thereby promote the prestige and position of Vietnamese banking system in the international arena Secondly, if involved in the process of globalization, Vietnam's banking sector has conditions to obtain capital, technology, management experience from countries with high levels of development Thirdly, through international integration, Vietnam has the opportunity to strengthen and develop the banking sector by further specializing banking business, enhancing efficient use of capital, and accessing to advanced banking services Fourthly, it also creates the motivation to promote the renewal and reform of the Vietnamese banking system to meet the conditions of integration and to be committed with financial institutions and commercial organizations at regional and global levels These commitments have been increasingly complex towards loosen the current restrictions and open for comprehensive liberalization Fifthly, the banking system will have conditions to train staff with high qualifications, to meet the requirements in the new phase 3.1.1.3 The global financial crisis in 2008 and its impact on the development trend of the MM in Vietnam - Firstly, on import and export: Due to the impact of the crisis, the demand for imports from Vietnam in most major markets such as the U.S., Japan, EU, China, Australia, etc will fall In addition, to prevent the lack of payment means and protect local businesses, they have improved protection measures, refused orders, or provided false information to lower the prestige of Vietnam products - Secondly, on banking and finance: Although the crisis has not seriously affected the banking system, but some indirect effects are significant First of all, the base rate is raised, compulsory reserve with very low interest rates are imposed, compulsory bills are allotted, “draconian” credit restriction measures are imposed on commercial banks, investment cuts, followed by the change of the exchange rate and USD interest rate, etc These put big burden to the commercial banks as well as to small and medium enterprises - On the stock market: Foreign investors have limited investment in Vietnam; divestment out of the country affects indirect investment inflows into the stock market - On foreign investment: The financial crisis has reduced foreign investment flows both directly and indirectly into Vietnam because of concerns about the uncertainty and the downturn of global economic - On economic growth: The above impacts have already affected the Vietnam’s goal of economic growth The economy will continue to face more challenges 3.1.1.4 The perspective of the XI Congress of the Communist Party of Vietnam on perfecting the socialist-oriented market economy 19 The first is to maintain the socialist-oriented market economy The second is to the develop forms of ownership, economic sectors, and the business types The third is to develop market factors and the types of market The fourth is to improve the Party's leadership role, the effective and efficient management of the State on the socialist-oriented market economy 3.1.2 Perspective, orientation and conditions of MM development in Vietnam after WTO accession 3.1.2.1 Perspective of MM development in Vietnam after WTO accession Firstly, adequate and consistent awareness with the development of the MM It is necessary to perceive the proper role of the MM in order to have the appropriate solutions on the operation of the market Each market has an important role in the economy and has its own characteristics However, markets have higher rates of return, are more attractive to money, so that goods prices in the market will increase and vice versa Secondly, MM development is a process Development of the MM in Vietnam should be considered as a long-term process The stable development of the MM, operating under the market mechanism with macro management of the State must first establish a healthy institutional environment, which creates favorable conditions to the full development of the components markets Thirdly, to ensure compliance with the “market” principle in MM operation In the process of operation of the MM in Vietnam, it is needed to respect the market principles and the objective mechanism, to promote the positive side as well as reduce negative impacts of the market The difference of the MM in Vietnam compared with that in other countries reflect the role of the State in managing the market economy towards socialism Therefore, operation of the MM in Vietnam needs to consider the experience of countries with developed market economies Fourthly, develop the MM towards regional and international economic integration with prudent and effective conduct of financial liberalization Currently, towards the trend of regional and global economic integration, the operation and development of the MM in Vietnam is to more "open" It demands the consolidated viewpoints for not only effective international integration in the financial and monetary sector, but also on maintaining independence, national sovereignty It requires developing internal resources, and internalize of the external resources in order to meet the socio-economic development goals in coming period However, the legislative achievements mentioned above are only the start of a process To get a sustainable development of MM after WTO accession, those changes are not enough It is needed to thoroughly comprehend the following key ideas: - The legal documents relating to MM transactions to be modified and complete to fit the new conditions 20 - The regulations permit the establishment and operation of banks, non-bank credit organizations and banking licenses of other organizations must constantly be adjusted and supplemented - More sharply define the functions of commercial banks and social policies banks - The legal system of inspection, testing, special control of the monetary and banking services to ensure certainty and consolidation Fifthly, MM development must take into account the synchronization factor in the development of the market system in Vietnam The synchronization of the market is the market system with a full range of: MM, technology market, labor market, land market, the market for goods and services, etc The markets is both independent and interrelated in the market system The State regulates these markets by macro management tools It is not possible to "form" the market and create the boundaries All actions towards voluntarism will create an “underground” market that the State cannot manage 3.1.2.2 Orientation of MM development in Vietnam after WTO accession Development of MM in Vietnam in 2015-2020 period must ensure: Firstly, a healthy financial system which is crucial to the stable macro economy in every country and to promote the economic integration of the country This is the prerequisite for monetary integration, contributing to the formation and development of the ASEAN market With the current monetary and financial characteristics of the ASEAN countries and the role of the financial system in regional development and cooperation, financial cooperation should focus on enhancing the stability, health and effectiveness of the financial and banking system, described as follows: Secondly, consolidatedly developing the markets with priority to the component markets: Thirdly, capacity building on MM monitoring and supervising for the State Bank Fourthly, strengthening the financial capacity and risk management for credit institutions-the major participants in the MM Fifthly, development of MM should be in step by step in accordance with the WTO commitments 3.1.2.3 The necessary conditions to develop the MM in Vietnam after WTO accession MM is very common in countries with developed market economies In Vietnam, this economic type is still new, strange, but seems to be very attractive In the context of international economic integration, the development of the MM in Vietnam should have the following prerequisites: - Firstly, the complete legal environment based on the socialist-oriented market mechanism and in compliance with international law; - Secondly, the sustainable socio-economic environment development; - Thirdly, the healthy financial and banking system ... foreign-capital banks in Vietnam As committed, the Vietnam Government issued Decree No 22/2006/ND-CP dated 28/2/2006 provisions: (1)- In order to open a foreign bank branch in Vietnam, the parent bank... Lessons learned to apply for Vietnam * * * CHAPTER CURRENT STATUS OF THE MONEY MARKET IN VIETNAM AFTER YEARS OF WTO ACCESSION 2.1 Overview of MM development in Vietnam 2.1.1 Establishment and development... During the years from the WTO accession, Vietnam may limit the rights of some foreign bank branches to accept deposits in Vietnamese Dong from Vietnamese citizens with which the bank does not