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VIETNAM ACADEMY OF SOCIAL SCIENCES GRADUATE ACADEMY OF SOCIAL SCIENCES DO THI BICH HONG VIETNAM’S MONEY MARKET DEVELOPMENT PHÁT TRIỂN ÁC XÃ VẬN TÀI THỦY-BỘ NỘI ĐỊA Ở ĐỒNG BẰNG SÔNG CỬU LONG Major Major code : : Economic management 9.34.04.10 THESIS SUMMARY HANOI - 2019 The Thesis is completed at: GRADUATE ACADEMY OF SOCIAL SCIENCES VIETNAM ACADEMY OF SOCIAL SCIENCES Scienctific: Prof.PhD To Thi Anh Duong 2.Assoc.Prof.PhD To Trung Thanh Reviewer 1: Reviewer 2: Reviewer 3: The Thesis defence before the Academy-level Dissertation Committee will be held at: Graduate Academy of Social Sciences, No 477 Nguyen Trai, Thanh Xuan, Hanoi At ……., ……… June,2019 Thesis might found in: - Graduate Academy of Social Sciences Library - National Library of Vietnam PREFACE Neccesity Money market plays a particularly important role in mobilizing savings, allocating capital sources effectively, promoting economic and social development Accordingly, the development of money market will support financial institutions and companies in storing short-term surplus capital; support the Government, financial intermediaries and companies to access short-term capital when needed; balance and regulate the liquitity among banks, contributing to regulate the monetary circulation on the national scale From the state management perspective of the Central Bank, the efficiency of money market plays an important role for the effectiveness of monetary policy; contributing to transmit monetary policy impacts to the economy In other words, fluctuations of money market will transmit signals of Central Bank monetary policy operation changes Money market is also seen as infrastructure for cash flow; good infrastructure could ensure smoothy and low risky monetary circulation The State Bank of Vietnam (SBV), which functions as the state management body for money and banking operations, is facing a great task to vigorously innovate its operation and management processes to meet best practices are increasingly in inspection and supervision of the system of credit institutions (CIs), management and supervision of payment systems and especially management and administration of money market effectively to fulfill the role and function of the final lender, to ensure good liquidity in the case of bankrupt Looking back at the period of 2008-2012, instability and weaknesses of Vietnam’s money market have caused significant impacts on SBV’s monetary policy operation, leading to the shortage of liquidity and the instability of interbank interest rates Along with the process of economy and Cis restructuring, the operations of Vietnam’s money market and the role of SBV should be reviewed to maintain the stability, safety, and healthyness of Vietnam’s money market Along with the international integration context, the financial market is growing sharply; the structure and scale of financial intermediaries has been changed with the increasing of foreign-invested financial institutions presence; the interconnection between domestic and international financial markets require Vietnam to quickly develop markets, including money market to create maximum conditions for mobilizing domestic and foreign financial resources, boosting cash flow, contributing to economic development to keep up with the process of international economic integration In addition, scientific and technological advances, especially the strong development of the Fourth Industrial Revolution, the era of digital revolution also increased the complexity and variety of products , banking and financial services, changing payment methods and cash flow Therefore, along with this development trend, money market in particular and the management and administration of the Central Bank in general must also develop and change in accordance with the new context So far, Vietnam’s money market has had an encouraging development: ensure the function of regulating short-term capital among CIs, ensure liquidity; ensure SBV’s monetary policy transmission channel However, the development of Vietnam’s money market has remained some weakness, in terms of the scale of transactions, participants, goods traded and transaction operations For the above reasons, I selected the topic “Vietnam’s monetary market development” to propose solutions to develop a stable, safe and sustainable Vietnam’s money market, contributing to the banking and macroeconomic stability Thesis objectives 2.1 Overall objective: Systematization of the theoretical basis of money market, money market development, identification of the role of the money market development for the implementation and planning of monetary policy of the Central Bank, the interaction relationship between money market development and the effectiveness of monetary policy implementation of the Central Bank providing solutions, policy recommendations forVietnam’s money market development toward 2030 2.2 Detail objective (i) Systematization of the theoretical basis of money market, money market development; introduction of criteria for assessing the development of money market; review on factors affecting the development of money market development and the conditions to ensure the development of money market; identification of the role of the money market development for the implementation and planning of monetary policy of the Central Bank, the interaction relationship between money market development and the effectiveness of monetary policy implementation of the Central Bank (ii) Analyzing and assessing the current situation of Vietnam’s Money market in the 2006-2018 period Assessment on successes and limitations of the State Bank of Vietnam in managing and developing Vietnam’s money market (iii) Providing solutions, policy recommendations forVietnam’s money market development toward 2030 Subjects and scope of the Thesis 3.1 Thesis subjects The development of Vietnam’s money market in the context of economic restructuring and restructuring of credit institutions and new development trends of the international financial market (as the development of the Public Revolution For the fourth time, the integration trend entails an increase in the interconnection between regional and international financial markets ) 3.2 Scope of the Thesis - Content scope: Due to the development of information and communication is a large problem, related to many areas, the author limits the content of the dissertation in the scope of researching the development of information communication in relation to the effectiveness of the Central Bank's monetary policy management and too process of restructuring credit institutions system The research framework of the thesis includes: (1) Researching the development of money market in relation to the effectiveness of monetary policy implementation of the Central Bank and the process of restructuring credit institutions; the development of departmental markets associated with the development and diversity of tools and goods on the market and market participants; operational mechanism of money market (2) Criteria for assessing the development of money market and the factors affecting the development of money market and the conditions to ensure the development of money market - Space range: In addition to analyzing the current situation of the development of money market in Vietnam, the thesis studies the experiences of many countries in the management and development of money market Accordingly, the thesis studies the development of money market of some developed economies (USA), countries where the banking system plays an important role - bank based (Thailand, China) to offer multi-dimensional assessments, from which, select lessons to suit the economic and social conditions of Vietnam - Time scope: The assessment of the development status of the money market in Vietnam is focused mainly in the context that Vietnam is trying to restructure the economy and restructure the banking system in association with handling bad debts (2011-2018) In addition to summarizing the results and limitations of Vietnam’s Money market in the period of 2011-2018; The dissertation also analyzes the limitations and weaknesses of the Money market in the previous period (2006-2010 period) to have a basis to assess and compare the development level of the market through two stages In the context of the Prime Minister signed Decision No 1058/QD-TTg dated June 17, 2017 approving the Scheme on restructuring the system of credit institutions associated with handling bad debts in the period 2016-2020 and promulgating the Strategy development of the banking industry by 2025 and orientation to 2030 according to Decision No 986/QD-TTg dated August 8, 2018, the Dissertation deeply analyzes requirements set by the State Bank in the management and regulation and supervising the Money market in general and the development of money market in particular in the context of international integration and the explosion of the 4th Industrial Revolution On that basis, propose solutions to develop Vietnam’s money market to meet the development requirements of Vietnam's financial-banking system and international economic integration, contributing to maintaining a healthy financial system Research method The thesis uses qualitative research methods, including: - Exploiting and synthesizing information from domestic and foreign research documents and works related to money market, financial market and money market development - Compare and evaluate the lessons learned from many countries in the world on the development of money market, the market structure and the tools and roles of the central bank on the money market as well as the use of money market to regulate monetary policy through interest rate channel; - Synthesizing data, using tables and diagrams to analyze and assess the status of Vietnam’s money market development in the period of 2006-2018 - Analyzing the successes, limitations and causes of limitations, as a basis for proposing solutions to develop Vietnam’s money market in the direction of overcoming the market's limitations - The thesis's approach Specialized in economic management, therefore, the development of money market is under the perspective of the Central Bank to maintain the market development of the system and the economy The techniques used include: - Techniques for collecting information for research based on available data (selectively inheriting previous scientific studies, published publications or information on the central banks website; SBV’s policy documents ) - Analyzing data on the development of money market through stages, drawing trend graphs, synthesizing and drawing judgment - Data source: from the State Bank, financial statements of commercial banks, State Securities Commission, General Statistics Office, Ministry of Finance and some international organizations such as IMF, WB, ADB New contributions (i) Systematization of the theoretical basis of money market, money market development; introduction of criteria for assessing the development of money market; review on factors affecting the development of money market development and the conditions to ensure the development of money market; identification of the role of the money market development for the implementation and planning of monetary policy of the Central Bank, the interaction relationship between money market development and the effectiveness of monetary policy implementation of the Central Bank (ii) Introduction of solutions to improve and develop money market of countries; Providing with analysis on advantages and disadvantages of each development model, thereby drawing lessons to develop Vietnam’s money market in accordance with Vietnam economic conditions (iii) Analyzing and assessing the current situation of Vietnam’s Money market (structure, scale, market segments ) in the 2006-2018 period, in which focusing on the period of 2011-2018 associated with the process of restructuring the system of Vietnamese credit institutions and the context of integration, increasing the linkage between domestic markets and international markets (iv) Assessment on successes and limitations of the State Bank of Vietnam in managing and developing Vietnam’s money market whereas providing solutions, policy recommendations forVietnam’s money market development toward 2030 The scientific and practical significance of the thesis - Science: The dissertation systematizes the theoretical basis as well as the reality of the development of information and communication in developed and developing countries; points out the criteria to assess the development of money market, the factors affecting the development of the market and the conditions to ensure the development of Vietnam’s money market In addition, the thesis also shows the role and interactions of central banks in the development of money market and the use of money market in the operation of monetary policy of the Central Bank - In practice: Based on the study of international experience in the development of Money market; At the same time, in-depth analysis of the current situation of Vietnam’s Money market development in many aspects; The thesis shows the limited success of Vietnam’s Money market in the period of 2006-2018; provide solutions and suggestions for policies to develop money market with a vision to 2030, in order to gradually improve the position, role, efficiency and effectiveness of the State Bank in managing, regulating, monitoring and developing money market meeting the development requirements of Vietnam's financial-banking system and international economic integration, thereby contributing to the development of the financial system Thesis structure - 1st Chapter: Literature Review - 2nd Chapter: Theoretical basis of money market - 3rd Chapter: Current situation of Vietnam’s money market developement in the context of restructuring credit institutions - 4th Chapter: Solutions for Vietnam’s money market development 1st Chapter LITERATURE REVIEW Overview of research situation is approached through the following main contents: (1) Regarding the general development of money market; (2) Concerning the concept, function, structure of money market; (3) Participating members, goods and tools on money market The international research projects mentioning the content of the development of money market have indicated the relationship between operating and implementing monetary policy with the development of the money market as well as the corresponding interest rate framework (Kuttner & Mosser research, 2002 and Loretan & Wooldridge, 2008) The development stages of money market are associated with the Central Bank's monetary policy planning process mentioned in the study of IMF (2004) Accordingly, the study affirmed that the move to fully utilize money market tools in implementing the monetary policy of the Central Bank needs to undergo a reform process consisting of basic stages corresponding to stages of money market development In the country, there have not been many studies mentioning the development of money market in general With different research purposes, the authors approached the development of money market in different ways, but all of them put the development of money market in the overall development of the financial market or in the relationship back and forth with the operation of monetary policy of the Central Bank Accordingly, the research gap in terms of content includes: (i) There has not been a study to systematize and fully mention the rationale for the development of money market, the evaluation criteria, the conditions to ensure the development of money market and the factors affecting the development of money market; especially, showing the role and interactive relationship of the development of money market in the central bank's monetary policy, supporting the process of restructuring the system of credit institutions; (ii) There has not been a research and analysis, fully evaluating the status of development of Vietnam’s Money market in the period of 2006-2018; focusing on the period 2011-2018 associated with the process of restructuring the system of Vietnamese credit institutions in the context of economic integration and the explosion of the Fourth Industrial Revolution and the implementation of the Development Strategy Banking industry until 2025, orientation to 2030; (iii) No research has shown the successes and limitations of the SBV in managing, regulating, monitoring and developing the Vietnam’s Money market, and providing solutions and suggestions for development policies and perfecting the Money market with a vision to 2030, contributing to improving the effectiveness of monetary policy operation of the State Bank and the process of restructuring credit institutions 2nd Chapter THEORETICAL BASIS OF MONEY MARKET 2.1 Theoretical basis of financial market and money market 2.1.1 Common definitions 2.1.1.1 Financial market definition Financial market is a market in which capital is transferred from people who have surplus capital to people who lack capital (Mishkin, 1992) 2.1.1.2 Money market definition Based on the theory of currencies of the scientists mentioned above, there are many different concepts about Money market, and concept of Money market in Vietnam, in the research scope of the thesis, PhD students focus on aspects the following edge of money market: (i) Is a part of the financial market - has a reciprocal relationship with other market segments (namely the capital market); (ii) As infrastructure for cash flow, plays an important role in conveying the impact of monetary policy to the economy, directly affecting the effectiveness of monetary policy implementation of the Central Bank; (iii) Meet the needs of short-term loans; provide liquidity/cash to borrowers (including organizations, individuals and the Government) and the economy 2.1.1.3 Money market development definition The development of money market is understood as the result of the process of changing and developing the market from a low level to a higher level, reflected in many contents such as market size (number of participants, transaction turnover); The increasingly competitive market is expressed through the improvement in the quality of market products and services (diversity, development of goods and tools in the market) and market prices (gradually reflects the exact capital supply and demand of the market) 2.1.2 Function, classification and money market structure 2.1.2.1 Function of money market - Regulating the supply and demand of short-term capital in the market, regulating the capital from the surplus place to the lack - Balancing and regulating the ability to pay among banks, regulating the monetary circulation within the country 2.1.2.2 Money market classification Within the scope of the dissertation's research, based on the analytical framework, the researcher divides the money market into the following 02 market segments: (i) Market (also called expanded Money market): is the shocks from the central bank and reduce the effectiveness of the transmission channel of interest rates, thereby reducing the effectiveness of operating monetary policy 2.5 Experiences in money market developement On the basis of analyzing the experiences of the US, China and Thailand in managing and developing the information and communication center, draw the following lessons: (i) Experience of the US, China, and Thailand all affirmed that Central Bank plays an important role in the management, supervision, operation and development of money market The development of money market supports positively for operating monetary policy in each country To accomplish this, central banks often implement three main solutions at the same time: Firstly, building a legal framework for the operation of Vietnam’s money market and adjusting the activities of participating members; Secondly, monitor, supervise and administer the Money market; simultaneously intervening in the market; Third, build infrastructure to support market operations; (ii) The legal framework and legal framework support an important role to support the development of money market (iii) Need to develop a mechanism for the market to operate effectively; in which, at any level of development, central banks play a key role in managing, monitoring and maintaining market discipline to best support the development of money market (iv) The central banks in the present countries tend to carry out many activities to implement their policy objectives on the money market Many central banks also determine their policy objectives by short-term interest rates on the interbank market (in the case of the three countries of the United States, China and Thailand) (v) In order to enhance the ability of integration and development of money market, to keep up with the trend of regional and international countries, besides the market of loans and deposits, the traditional development of the repo-market needs to be promoted take into account the use of tools in the foreign exchange market to achieve the operational objectives set out on other market components 11 3rd Chapter CURRENT SITUATION OF VIETNAM’S MONEY MARKET DEVELOPMENT IN THE CONTEXT OF RESTRUCTURING CREDIT INSTITUTIONS 3.1 Overview of Vietnam’s money market development Vietnam’s money market has been formed and gradually developed in line with the process of national economic renewal and development So far, money market has played an important role in regulating the demand and supply of short-term capital to support production, business, service and life activities of entities in the economy; perform the function of balancing and regulating capital resources among banks, contributing to supporting banks to ensure solvency, safe and efficient operation Through activities on money market, the State Bank of Vietnam has implemented monetary regulation to implement the national monetary policy, curb inflation and boost economic growth Although still modest in scale, the components of the market have formed and developed to a certain extent (including the inter-bank domestic and foreign currency market, the bill-bidding market) Treasury - short-term valuable papers market, monetary operations of the State Bank as the lending operation of the State Bank in the form of mortgage lending, discounting of valuable papers, open market operations, professional operations currency exchange…) Market participants, commodities traded in the market as well as operating turnover of money market operations are expanded; market activities have been gradually modernized, meeting the requirements of integration 3.2 Current situation of money market development based on evaluation criterias 3.2.1 Money market scale and money market depth In the period of 2005-2017, Vietnam’s money market has expanded in terms of scale (fully formulating market segments; the ratio of loans/ GDP has increased steadily over the years and in the last years it has always been above 100%); Sales turnover in the markets also increased significantly However, this proves that the development is wide but not in depth because of the dependence of the economy on the banking system (expressed through loan/GDP ratio) showing the poor capital market development, significantly affecting the development of goods and tools on the money market 12 3.2.2 Money market segments development The composition of Vietnam’s money market has developed at a higher level with the formation of more market segments, such as the interbank domestic currency market (1993), the interbank foreign exchange market (1994), the Treasury bill bidding market (1995), open market operations (2000), valuable papers market and derivative market also gradually formed 3.2.1.1 Interbank market developement a) Interbank Domestic currency market The interbank domestic currency market is the core market of Vietnam’s money market, playing an important role in supporting liquidity for organizations in the system Although there has been a step-by-step development, it has started to operate more strongly since 2005 (expressed through points such as the increase in transaction turnover over the years; the interest rate in the market partly reflects that) be provided - demand for available capital and liquidity situation of credit institutions, reflect changes in economic conditions and changes in the SBV's policy management objectives; However, the market still has certain limitations that need to be overcome such as: the market still has the separation and monopoly, which leads to unfavorable movements between price (interest rate) and capital supply and demand; the market is highly seasonal; there is no common standard contract for bank loan/deposit transactions; interest rates on the market sometimes not reflect the supply and demand b) Interbank foreign exchange market Through the operation of the interbank foreign exchange market, the SBV has been more proactive in capturing foreign currency demand and supply and entering the market as the last buyer since then there are market interventions when necessary to implement monetary policy objectives in each period However, compared to the markets of developed countries, the market needs to develop in the direction of prioritizing forward transactions and foreign exchange to better connect the foreign currency demand and supply for banks, and respond to demand for foreign currency for the fast growing import and export activities of the economy 3.2.2.2 Expand Money market a) Short-term valuable papers market (1) Open market operations (2) Treasury bill bidding market 13 (3) Other short-term valuable papers market The GTC market in Vietnam has not really developed Commodity transactions are still diverse, mainly the bidding market for Treasury bills and bonds Transaction term of Treasury bills has not really attracted investment banks due to lack of diversity and most of them have a term of nearly year The method of repo trading - useful tools in the money market of developed countries is still limited In addition, the market has certain conditions to become a member (directly reviewed by the State Bank), so the number of participants who actually participate in the transaction and the number of participants in each session is still modest and limited institutional development b) Short-term loan market Vietnam's short-term credit market is quite large, reflected by the ratio of loans/GDP (continuously higher than 100% in the last years), which shows that Vietnam depends heavily on bank credit is very high This potential is not less risky especially in the condition of health and safety of credit institutions in the system is not high 3.2.3 Money market tools development The tools and goods traded on Vietnam's money market have been quite rich up to now, however, some goods and tools, although they have appeared but are not yet popular, partly limit the diversity of Vietnam’s money market Currently, the financial instruments traded on the market are mainly treasury bills with a term of 364 days This shows that goods in Vietnam’s money market rely heavily on capital needs to offset the state budget overspending Moreover, despite the Law on Assignment Tools, the valuable papers such as deposit certificates and promissory notes have not become a trading instrument in the market for many reasons as discussed above, including the causes It is difficult to determine the quality and risk of issuances issued by enterprises due to the lack of reliable credit rating agencies On the other hand, these types of valuable papers are not issued according to international standards, making transactions in the unstandardized market take a lot of time and cost to calculate income or discount Contracts for repo repurchase (term of valuable papers) are considered to have an important position in the secured lending market However, the buying market in Vietnam has not yet developed while the world market is very active and tends to account for a very large proportion The cause comes from the absence of a uniform standard model for this type of 14 transactions, making the secondary market of the types of valuable papers without conditions to develop The repo contract that banks currently apply is due to the banks build themselves in a self-negotiated way and refer to some content in the sample contract of the Banking Association and not use completely this contract form because there are so many complex points, not suitable to the actual conditions of Vietnam 3.2.4 Money market paticipants development 3.2.4.1 Diversity participants The number of market participants increased over the years, especially in the interbank market and the open market with the participation of most types of credit institutions from state-owned commercial banks, joint-stock commercial banks and banks overseas to finance and insurance companies Currently, only the market for government bonds / bonds is limited to the market participants (must meet specific conditions considered and decided by the SBV) This market is also dominated by credit institutions (the CIs holds over 50% of the Government bonds issued) Up to now, Vietnam’s money market has had more than 110 credit institutions allowed to participate including Vietnamese commercial banks, foreign bank branches, finance companies, financial leasing companies, policy banks, and banks cooperatives, people's credit funds, microfinance institutions (however, there is currently no participation of this type of organization); In which, commercial banks are mainly active members, accounting for over 85% of the market trading turnover 3.2.4.2 Money market paticipants health has been upgrading In the last 10 years (through 02 stages of restructuring), Vietnam's commercial banking system has made rapid development steps in terms of scale, ownership structure, type and operational capacity The governance structure of commercial banks has been improved, the operational efficiency of the banking system has also been continuously improved However, compared to the world, the safety level of Vietnam's commercial banking system has improved, but is only equivalent to the level of low-middle income countries According to the 2012 statistics of the World Bank, Vietnam's CAR is 11.8, while Malaysia's CAR is 17.6, Indonesia's is 17.3, and the Philippines is 17.8 higher / higher total assets, while lower CAR, this implies that Vietnam's assetto-risk ratio / total assets is higher than other countries, reflecting the risk of potential asset quality more ro Vietnam's bad debt ratio as of the end of 2012 15 was 3.4%, higher than all countries in the region, and also higher than China (1%), South Korea ( 0.6%) 3.2.5 Money market rates In some periods, the policy interest rates of the State Bank have not really promoted the role of market interest rate orientation, the relationship between these interest rates and the market interest rate has not really closely linked, in a way Other, the policy interest rate system of the State Bank is not yet oriented and binding on market interest rates Specifically: Firstly, the refinancing rate is the last lending rate of the State Bank for the market, but this interest rate is always lower than the interest rate on the interbank market Secondly, the interest rate on inter-bank money market is where the reference interest rate is formed for other investment activities in the interbank market, but many times the interbank interest rates not reflect the market supply and demand Thirdly, the interest rate on the open market is theoretically the interest rate that is closest to the interest rate on the interbank market but the relationship between these two interest rates is still not tight Fourthly, VNIBOR standard interest rate built by Reuteurs on Bloomberg website is not really a signal reflecting the development of Vietnam’s money market because it was built based on the data of bids and offers offered by banks supply, not actual transaction rates As can be seen, Vietnam has not yet succeeded in establishing an interest rate corridor at which interest rates must be between the discount rate and the refinancing rate Figure 3.12 shows a positive correlation between the policy interest rate (Discount rate, REPO interest rate, refinancing rate and basic interest rate) with the market interest rate (3-month deposit and lending rates of Commercial banks), as well as between interbank interest rates and market interest rates However, deposit interest rates are greater than discount rates and refinancing rates at most times On the other hand, volatility of market interest rates tends to be higher when interest rates are lower; demonstrating that the impact of policy rates on market rates will be limited when policy rates are low and impact more effectively when policy rates are high (Asymmetric effect) 3.2.6 Money market infrastructure development Information technology infrastructure serving transactions in Vietna’s money market has basically been gradually formed and has certain 16 development steps However, the infrastructure that supports the operation of money market in Vietnam still has limitations to overcome, such as: - Lack of application system to timely monitor all market developments, limiting the collection and processing of information and market data of the State Bank; while limiting the transparency of the market (members lack information or access to information) - There is no depository bank, valuable papers depository system has not been implemented online - There is no agreement on the standard GMRA contract for repurchase transactions and it is not agreed to apply the standard ISDA derivative contract - No market practice has been established for redemption contract transactions, deposit certificates, derivative transactions, negotiable transactions - There is no credit rating company to support derivative transactions and corporate credit rating companies for negotiable transactions - The linkage of information and coordination mechanism between the SBV and the Ministry of Finance in the valuable papers market management still needs to continue to update and upgrade - Lack of information system on corporate bond issuance and trading 3.3 Affecting factors of Vietnam’s money market development 3.3.1 The level of national socio-economic development and the development of market segments in the financial market 3.3.2 Market management, supervision, regulation 3.3.2.1 Legel framework 3.3.2.2 Market infrastructure 3.3.2.3 SBV market management 3.3.3 Integration process 3.4 Overall evaluation 3.4.1 Successful points 3.4.1.1 Market structure, participants and tools and goods on the market have developed to a certain extent 3.4.1.2 Market development ecosystems (legal corridors, market practices, infrastructure) were initially established 3.4.1.3 The capacity of financial intermediary organizations to participate in the market is increasing, supporting the development of the monetary market 17 3.4.2 Limited points 3.4.2.1 The policy interest rate system of the State Bank is not yet oriented to market interest rates 3.4.2.2 The SBV's ability to control interest rates remains inadequate 3.4.2.3 The capital rotation in the market is still ineffective, the operation in the market also has the separation and monopoly 3.4.2.4 Paticipants and financial instruments in the market are not yet diversified 3.4.3 Causes 3.4.3.1 The system of Vietnam's monetary and interest rate market operations is characterized by differences in international theory and practice 3.4.3.2 Market discipline has not been strict, policy-making mechanism lacks communication with the market 3.4.3.3 The structure of the market is incomplete 4th Chapter SOLUTIONS FOR VIETNAM’S MONEY MARKET DEVELOPMENT 4.1 Domestic and international economic trends 4.1.1 International economic trends The world economy can enter a new growth trend after the efforts to stimulate growth of central banks around the world The monetary policy of major central banks will enter a tightening cycle, causing great challenges in the flow of investment capital in the world, leading to big fluctuations in international financial and monetary markets In addition, the tendency to maintain low interest rates in many countries contributes to further the development of the capital market Globalization continues to be an irreversible trend In the context of world economic growth in general and Vietnam in particular will be affected by the trend towards multilateral trade agreements (often of a nature regional) and new generation free trade agreements with higher levels of liberalization and greater commitment (such as the Comprehensive and Trans-Pacific Partnership Agreement - CPTPP), Trade Agreement Vietnamese freedom - EU - EVFTA ) Accordingly, the structure of international investment flows will have many changes, FDI inflows of major partners around the world tend to decrease along with competition in attracting more and more FDI among countries, the increase in indirect investment and foreign debt along with the roadmap of 18 financial liberalization as committed, creating significant challenges to monetary stability and financial stability On the other hand, deep integration while the Vietnamese economy has not been recognized as a market economy entails risks of foreign partners putting pressure on exchange rate policies and interest rates At the same time, integration also increases the linkage between the domestic money market and the international financial market in general and the money market r in particular; increase the competitiveness for development Financial Inclusion is gradually becoming a popular trend and has been implemented in more than 70 countries around the world Along with that, in the context of the strong development of information technology and telecommunications, the presence of Fintech in the market is growing, leading to changes in the way to continue approach to developing financial banking products and new distribution channels Technological innovation promoted and supported by the Industrial Revolution The fourth time will change the management and administration methods of the Central Bank as well as the operation of the banking system; including activities of money market For the operation of the State Bank, the advantages of technology help the State Bank accelerate the process of modernization, transforming supply services from mainly manual processing to electronic environment Besides, thanks to big data technology and Blockchain, data analysis and management will be faster, more accurate, safer and more transparent, facilitating project work newspaper, statistics and activities of money market However, in the context that digital money is increasingly being used and widely accepted, Fintech, non-bank/underground banking activities are increasingly developing the management of the Central Bank's monetary policy in the face of unrest Not small, especially, in controlling cash flow, payment risk and operating safety of the whole system Advances from the Fourth Industrial Revolution are a springboard for domestic banks to develop and compete with advanced regional and world banks in terms of capturing, adapting and changing timely with new technology trends The impact of the Fourth Industrial Revolution, namely mobile Internet, cloud computing, big data, Internet of Things (IoT), Blockchain technology will help domestic banks shape business model, management, towards building smart digital banks in the future The growing 19 sophistication of digital technology also entails an increase in security vulnerabilities, facilitating high-tech crimes, and hackers operating more and more frequently In addition, the development of new, highly integrated and modern banking services and channels also creates security concerns in electronic financial transactions, including the trading on money market 4.1.2 Domestic economic and banking trends In the country, development achievements over 30 years of innovation have laid a solid foundation for the next development process of the banking industry The basic market economy institution has been formed and constantly improved; international integration with a much deeper level than the previous period; The process of restructuring the economy in depth is an opportunity to help the efficiency of capital use increase, businesses operate more efficiently, improve profits and reduce risks for the banking system The demand for retail banking services is also increasing based on the advantages of a young population structure and the current rate of access to banking services is still low The development of science and technology has been and will create strong impetus for the development of the financial sector in the global scope in general, for Vietnam and the banking industry in particular Vietnam is expected to continue to be among the fastest growing countries in the world with further advances in global value supply chains Demand for capital will continue to increase rapidly to meet development requirements while reduced capital and aid will put more burden on the banking industry On the other hand, the economy is implementing a restructuring, changing from developing width to depth, growth in the coming period must ensure sustainable growth, leading to the demand for social investment to continue to be high level The process of restructuring state-owned enterprises continues to be completed, thereby forming many joint-stock companies along with the rapid growth of the private business sector, putting an urgent need to innovate and perfect the stock market ; At the same time, it is necessary to develop the money market to suit the development of the stock market The number of golden population entered the peak period with the rapid increase of the middle class, requiring modern and fast banking facilities and services The trend of saving and consumption has changed somewhat, changing the operating structure of the banking system In addition, the structure, organizational model, business operations of credit institutions will 20 also have qualitative changes from the process of bad debt handling and restructuring and restructuring as required to improve the capacity of monitoring information of credit institutions The SBV placed in the context of the system of credit institutions to carry out the overall restructuring to handle bad debts, improve financial capacity and apply international standards in banking management (Basel II and Basel III) Along with the strong development of digital technologies associated with the Fourth Industrial Revolution, Fintech and Blockchain technology continue to make a big impact on the operation of banking system Cooperation between banks and financial technology companies will be the key development trend in the coming time to take advantage of the advantages and exploit each other's strengths Fintech and digital money will have implications for the circulation of money, financial infrastructure and payment systems, which will certainly impact the development of Vietnam’s money market, pulling on demand change and develop infrastructure to support the development of money market; At the same time, it is necessary to raise the level of risk management of credit institutions to limit the risk of spread on inter-bank money market 4.2 Money market developement goals and orientation 4.2.1 Financial market development goals and orientation 4.2.2 Money market development goals and orientation In the scope of the dissertation research, the PhD student gives 04 views of developing Vietnam’s money market until 2030 as follows: Firstly, development of money market is a long process, cannot be impatient and burn the stage The development of money market needs to be operated according to the market mechanism with macro management of the State, in parallel with the establishment of a full institutional environment for the developed market, such as the legal framework and economic foundation and the development of supporting markets Secondly, it is necessary to ensure market principles in the process of managing, regulating and developing the money market Accordingly, interest rates on the money market must reflect the market supply and demand, reflecting the prices of goods and tools on the money market Thirdly, developing the Money market in the connection, closely linked to the international financial market, ensuring to minimize negative impacts from the evolution of the international financial market to the domestic market; 21 step by step apply international practices and standards to the operations of money market Fourthly, the development of information security needs to be implemented synchronously with the process of restructuring the economy, restructuring the financial system, especially the system of credit institutions Accordingly, the development of money market and restructuring the system of credit institutions have reciprocal and mutual interaction The consolidation and enhancement of operational capacity and financial capacity of credit institutions will contribute to improving the capacity of commercial banks - being a key member in the interbank market, increasing public and investor confidence For the operation of these commercial banks, contributing to facilitating capital sources, creating stable development, limiting risks for money market 's operations Accordingly, the major orientations in the development of Vietnam’s money market until 2030 are determined as follows: Firstly, synchronous development of market segments such as unsecured interbank market (lending, unsecured deposits), interbank market guaranteed by Repo or guaranteed in other forms (reciprocal foreign currency ), the foreign exchange market, the market for treasury bill bidding and other financial instruments traded on the market such as deposit certificates, commercial papers, and market shares derivative school; diversify monetary tools and goods in the market Priority should be given to developing inter-bank money market Secondly, developing money market in close interaction with stock market, insurance market and other financial markets Thirdly, continue to improve the operational mechanism of the money market in the direction of enhancing the role of the State Bank in managing, regulating, supervising and developing the money market with a focus on interest rate mechanism Fourth, improve the capacity of market participants; especially commercial banks associated with the context of implementing the restructuring process in the second phase of 2016-2020 and implementing the Banking Industry Development Strategy until 2025 with orientation to 2030 4.3 Solutions for Vietnam’s money market development 4.3.1 Solutions to strengthen the State management capability of the State Bank to the market 22 4.3.1.1 Perfecting the legal corridor to support the operation of the monetary market 4.3.1.2 Finishing financial infrastructure to support the development of the monetary market 4.3.1.3 Develop and standardize a system of tools to control market interest rates 4.3.2 Solutions for money market development 4.3.2.1 Diversify trading tools, professional types in the market 4.3.2.2 Diversify members participating in the monetary market a) Enhance the role of Vietnam Banking Association b) Promote the formation and development of primary dealers - PDs c) Promote the formation of monetary brokers / monetary brokers and credit rating companies 4.3.2.3 Solutions for market segments development a) Building a centralized interbank market model b) Continuing strong development of open market operations c) Develop the repo market 4.3.2.4 Implementing VNIBOR 4.3.3 Some recommendations CONCLUSION The level of development of a country can be assessed according to the level and scale of the development of the financial system Therefore, the development scale of money market also reflects the level of financial development of that country A stable money market is the foundation for creating macroeconomic stability, promoting domestic production and consumption, encouraging exports and attracting foreign investment, thus creating a driving force for growth economic in a sustainable way The development of money market also helps to ensure the effective transmission of monetary policy to the economy through the instruments that the central bank uses to regulate the money supply or interest rate in accordance with specific objectives of monetary policy in each stage It can be seen that Vietnam’s money market has so far had encouraging development, basically, has been able to regulate short-term capital among credit institutions, ensuring liquidity, safe and efficient operation of the system; meeting the role of monetary policy transmission channel of the State Bank In 23 addition, the market still has certain limitations, especially in the management and administration aspects of the State Bank and entities, goods and trading instruments on the market On the basis of the basic issues of the development of money market has been systematized in Chapter of the Thesis, based on the criteria of evaluating the development and factors affecting the development of money market, Thesis assessed and analyzed the status of Vietnam’s money market in the period of 2006-2018, pointed out the success points, limitations and the reasons from which to propose views, orientations and solutions to develop the money market partly improving the market's limitations, thereby further improving the development of Vietnam’s money market; improve market monitoring capacity of the State Bank in the context of the overall restructuring of credit institutions to deal with bad debts, improve financial capacity and apply international governance standards in bank risk management Basel II 24 LIST OF PUBLISHING ARTICLES No Name of the article “The Interest rate channel of State Bank of Vietnam’s Monetary Policy: An Empirical Analysis” “Youth savings – new approach” Name of publishing adrress Vietnam’s socioeconomic development Vietnam banking review “The affect of The Fouth Industrial Revolution to banking and financial sector” “Banking Supervisory Model – international approach and recommendations for Vietnam” “Banking and The Fouth Industrial Revolution – some new approaches” “The role of Vietnam Banking Association through diffent view” “Completing the institution on financial stability and ensuring the safety of credit institutions towards international practices” Financial Review Ministry level research project 2016 “Vietnam banking system overview in the period of 20112017, toward 2020” Ministry level research project 2017 “Vietnam Banking Supervisory Model” State Bank Vietnam of State Bank Vietnam of Vietnam inancial Economic Review Economic and Development Review Vietnam Banking Association National Economic University Time ISSN-0868-359X; Volume 22, Issue – Number 92), January 2018, 56 ISSN-0866-7462; (No 10), May/2018, 58 ISSN-005-56; (No 658), 1st Semester, June/2017, 14 ISSN 2354-127X; (No 2[11]), April/2017, 68 ISN 1859-0012; (No 230[II]), August/2016, 21 Financial Publishing House, Hanoi, 2016 National Economic University Publishing House, Hanoi, 2016 Decision No 242/QĐ-NHNN dated 02/02/2018 Decision No 2130/QĐ-NHNN dated10/10/2017 ... “Vietnam banking system overview in the period of 20112017, toward 2020” Ministry level research project 2017 “Vietnam Banking Supervisory Model” State Bank Vietnam of State Bank Vietnam of Vietnam... ARTICLES No Name of the article “The Interest rate channel of State Bank of Vietnam’s Monetary Policy: An Empirical Analysis” “Youth savings – new approach” Name of publishing adrress Vietnam’s socioeconomic... and social conditions of Vietnam - Time scope: The assessment of the development status of the money market in Vietnam is focused mainly in the context that Vietnam is trying to restructure the