Vietnam is a rapidly developing country that has undergone significant economic transformations in recent decades, fueled by exports, foreign direct investment, and a growing domestic market. However, these developments have also exposed Vietnam to the challenges and risks that come with being integrated into the global financial system. As such, this paper aims to explore the global monetary systems and financial institutions and their implications for Vietnam. The study reviews the existing literature on the topic, collects relevant data on Vietnams economic indicators, and analyzes the structure and functioning of the global monetary system and their impact on Vietnams exchange rate and trade competitiveness. The study also evaluates the role and effectiveness of financial institutions such as the World Bank, IMF, and Asian Development Bank in supporting Vietnams economic development and stability, and assesses the implications of the global monetary system and financial institutions on Vietnams economy. The study concludes with policy recommendations to mitigate potential risks and maximize the benefits of Vietnams integration into the global financial system, including strengthening domestic financial institutions, diversifying the economy, and reducing reliance on exports.
FOREIGN TRADE UNIVERSITY FACULTY OF BANKING AND FINANCE *** INTERNATIONAL FINANCE MIDTERM REPORT ANALYZING THE GLOBAL MONETARY SYSTEMS AND FINANCIAL INSTITUTIONS, IMPLICATIONS FOR VIETNAM Class: TCHE414 Instructor: Assoc Prof Dr Mai Thu Hien Group: Hanoi, June 2023 TABLE OF CONTENTS ABSTRACT .1 INTRODUCTION CHAPTER 1: OVERVIEW OF THE INTERNATIONAL MONETARY SYSTEM AND FINANCIAL INSTITUTIONS 1.1 Overview of the monetary system 1.1.1 Definition 1.1.2 Development history 1.1.3 Features 1.1.4 Functions 1.2 Overview of financial institutions 12 1.2.1 Definition 12 1.2.2 Types of financial institutions .13 1.2.3 Functions 15 1.2.4 Regulations .17 CHAPTER 2: THE SITUATION IN VIETNAM AND AROUND THE GLOBE 20 2.1 Monetary system and financials instituions in Vietnam 20 2.1.1 The monetary system in Vietnam 20 2.1.2 Financial institutions in Vietnam 22 2.2 European money market 25 2.2.1 Overview 25 2.2.2 General features of the European money market 26 2.2.3 International financial organizations 29 CHAPTER 3: RECOMMENDATION .42 CONCLUSION 44 REFERENCE 45 ABSTRACT Vietnam is a rapidly developing country that has undergone significant economic transformations in recent decades, fueled by exports, foreign direct investment, and a growing domestic market However, these developments have also exposed Vietnam to the challenges and risks that come with being integrated into the global financial system As such, this paper aims to explore the global monetary systems and financial institutions and their implications for Vietnam The study reviews the existing literature on the topic, collects relevant data on Vietnam's economic indicators, and analyzes the structure and functioning of the global monetary system and their impact on Vietnam's exchange rate and trade competitiveness The study also evaluates the role and effectiveness of financial institutions such as the World Bank, IMF, and Asian Development Bank in supporting Vietnam's economic development and stability, and assesses the implications of the global monetary system and financial institutions on Vietnam's economy The study concludes with policy recommendations to mitigate potential risks and maximize the benefits of Vietnam's integration into the global financial system, including strengthening domestic financial institutions, diversifying the economy, and reducing reliance on exports The study provides insights into the challenges and opportunities that Vietnam faces in the global financial landscape and highlights potential policy interventions to ensure sustainable economic growth and stability Overall, the paper concludes that Vietnam's integration into the global financial system presents both opportunities and challenges While Vietnam has made significant progress in recent years in terms of economic growth and development, it must continue to navigate a complex and rapidly changing global financial landscape to achieve sustained success in the long term INTRODUCTION Rationale of the study Analyzing the global monetary systems and financial institutions is crucial for understanding the economic dynamics of different countries, including Vietnam Vietnam is a rapidly developing country that has undergone significant economic transformations in recent decades Its economic growth has been fueled by a range of factors, including exports, foreign direct investment, and a growing domestic market However, these developments have also exposed Vietnam to the challenges and risks that come with being integrated into the global financial system One of the most significant implications of the global monetary system for Vietnam is the impact on its exchange rate As a relatively small economy, Vietnam is vulnerable to fluctuations in the value of its currency The global monetary system, therefore, has a significant influence on Vietnam's exchange rate and, in turn, its trade competitiveness For example, if the US dollar strengthens, this may make Vietnam's exports more expensive and less competitive, which could negatively affect its economy Moreover, the global monetary system can also impact Vietnam's access to financing Financial institutions such as the World Bank and the International Monetary Fund (IMF) play a critical role in providing financial assistance to developing countries such as Vietnam Changes in the policies of these institutions or fluctuations in global interest rates can affect Vietnam's ability to access financing and may result in increased borrowing costs Vietnam's financial institutions also face challenges in the global financial system The country's banking sector, for example, is still in the early stages of development and is vulnerable to financial shocks The global monetary system can impact the stability of Vietnam's financial institutions, particularly in times of economic crisis Moreover, the increasing integration of financial markets globally means that shocks in one part of the world can quickly spread to other regions, including Vietnam Thus, analyzing the global monetary systems and financial institutions is crucial for understanding the implications for Vietnam's economy The country is vulnerable to fluctuations in the exchange rate, changes in financing policies, and instability in its financial institutions Therefore, policymakers in Vietnam must carefully monitor the global financial system and take steps to mitigate these risks This may include developing stronger financial institutions, diversifying the economy, and reducing reliance on exports Objective of the study This study aims to analyze the global monetary systems and financial institutions and their implications for Vietnam in order to gain a comprehensive understanding of how the global financial system affects Vietnam's economy This analysis will enable policymakers, economists, and investors to identify the risks and opportunities associated with Vietnam's integration into the global financial system and develop strategies to mitigate potential risks while maximizing the benefits of globalization Through this objective, we aim to provide insights into the challenges and opportunities that Vietnam faces in the global financial landscape and highlight potential policy interventions to ensure sustainable economic growth and stability Methodology of the study In this study, to analyze the global monetary systems and financial institutions, we will employ the qualitative method, including material study and statistics, generalizing descriptions, inductive and deductive reasoning, and methods for analysis, comparison, and contrast These techniques are integrated with systematic theory and logical reasoning to provide answers to pertinent problems in the research The study also uses findings from other related scientific research projects in accordance with existing principles to develop a comprehensive understanding of the global monetary systems and financial institutions, and their implications for Vietnam Scope of the study In order to achieve the objective above, we intend to observe and analyze the international monetary system and financial institutions around the world, and also the current situation of Vietnam so as to provide the insights into the challenges and opportunities that Vietnam faces in the global financial landscape Structure of the study This research consists of main parts: Chapter 1: An overview of the monetary system and financial institutions Chapter 2: Situation in Vietnam Chapter 3: Recommendation CHAPTER 1: OVERVIEW OF THE INTERNATIONAL MONETARY SYSTEM AND FINANCIAL INSTITUTIONS 1.1 Overview of the monetary system 1.1.1 Definition The international monetary system is a system of international practices, rules, procedures, and institutions that govern the financial relations of nations Countries agree to establish voluntary rules, laws, and institutions to regulate the financialmonetary relationship, creating favorable conditions for international economic development In its widest sense, the international monetary system includes the broad network of banking and commercial practices through which day-to-day international transactions are undertaken The pricing of international shipments, the extension of credit, and the settlement of accounts take place in terms of many currencies Mainly, these are the currencies of Western Europe and the United States, and more particularly, within that group, the major “trading currencies,” i.e., the U.S dollar, the pound sterling, and the French franc In a narrower sense, the international monetary system is the complex of international rules and understandings which have evolved in an effort to ensure, by international agreement, a fair and efficient method of conducting international transactions In this sense, the present system of international cooperation and consultation, which arose to a large extent from the 1944 Bretton Woods Conference, is in sharp contrast to that of the interwar period, particularly the 1920’s, when countries pursued their financial policies with little regard for, and little understanding of, the effects that these policies might have on other countries 1.1.2 Development history 1.1.2.1 The Gold Standard Between 1880 and 1914, the gold standard was referred to as the monetary system through which each country could fix the value of their currency in terms of gold The exchange rate was based on the determined value For example, if the U.S fixed ounce of gold = $20 The United Kingdom had set the value of one ounce of gold equal to 10 pounds Then, the pound-dollar exchange rate would be $20 = 10 Pounds The gold standard system had a fixed exchange rate system that facilitated the free convertibility of gold into national currencies and vice versa The most significant advantage of this system was its ability to correct imbalances As gold payments make balancing off easier, settling the balance of payment (BOP) deficits or surpluses could be easy Moreover, the fixed exchange rates made international trade easier under the gold standard 1.1.2.2 The War Period Between 1925-1922 between the world wars, the gold standard started losing its way The war had created a dent in the world economy, and every country wanted to export more to revamp and rebuild their economies Therefore, they significantly depreciated their currencies’ value to export extensively and benefit from economies of scale This period of chaos and rebuilding saw exchange rates fluctuate and competitive devaluation unlike ever before 1.1.2.3 The Bretton Woods System Only a few nations had the resources to survive after two world wars, while others struggled to feed their citizens In times like these, the United States of America and the United Kingdom started discussing the possibilities and ways to rebuild the world economy after two disastrous wars in the mid-1940s The United Nations formulated the new international monetary system at the Bretton Woods Conference in Bretton Woods, New Hampshire The Bretton-woods Conference led to the creation of a dollar-based fixed exchange rate system Under this system, the U.S dollar was backed by reserve gold All other currencies did not have to maintain a gold reserve for conversion Therefore, the conversion rates were minimal 1.1.2.4 The Jamaica System Around 1971, high inflation rates and a trade deficit led to a gold process hike Therefore, the U.S had to stop the convertibility of gold Owing to factors like these,