Decree No. 86/1999/ND-CP On State Foreign Exchange Reserves Management

DECREE

On State Foreign Exchange Reserves Management

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THE GOVERNMENT

Pursuant to the Government Organization Law dated September 30, 1992;

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997;

At the proposal of the Governor of the State Bank of Vietnam,

DECREE:

PART I

GENERAL PROVISIONS

Article 1. State foreign exchange reserves are assets owned by the State reflected in the balance sheet of the State Bank. The State Bank is the agency managing State foreign exchange reserves to implement national monetary policy, ensure international payment capability, and preserve State foreign exchange reserves.

Article 2. State foreign exchange reserves include:

1. Cash foreign currency, balances of foreign currency on deposit accounts abroad;

2. Foreign bills and foreign debt instruments denominated in foreign currency;

3. Debt securities issued or guaranteed by foreign governments, foreign banks, financial organizations, or international banks;

4. International standard gold;

5. Other types of foreign exchange.

Article 3. State foreign exchange reserves are formed from the following sources:

1. Existing foreign exchange currently owned by the State managed by the State Bank;

2. Foreign exchange purchased from the State budget and from the foreign exchange market and domestic gold market;

3. Foreign exchange from bank loans and international financial organizations;

4. Foreign exchange from other sources.

Article 4. State foreign exchange reserves are managed according to the principles:

1. Preservation of reserves;

2. Ensuring readiness for payments, meeting foreign exchange needs when necessary;

3. Generating income through investment operations specified in Article 7 and Article 16 of this Decree.

Article 5. State foreign exchange reserves are established into two funds:

1. The foreign exchange reserve fund;

2. The foreign exchange rate and gold price stabilization fund.

Chapter II

MANAGEMENT OF THE FOREIGN EXCHANGE RESERVE FUND

Article 6. The foreign exchange reserve fund is used in the following cases:

1. Balancing foreign exchange sources with the foreign exchange rate and gold price stabilization fund when necessary;

2. Implementing investment operations specified in Article 7 of this Decree;

3. Temporarily lending to the State budget to meet urgent foreign exchange needs of the State as decided by the Prime Minister.

Article 7. The State Bank manages the foreign exchange reserve fund through the following investment operations:

1. Depositing, buying, and selling foreign currency and gold abroad;

2. Buying and selling foreign debt instruments and foreign-denominated debt securities;

3. Other foreign exchange transactions when approved by the Prime Minister.

Article 8. The Governor of the State Bank decides:

1. The structure of the foreign exchange reserve fund, including:

a) The ratio of reserves in foreign currency and gold;

b) Types of foreign currency and the ratio between different types of foreign currency;

c) The ratio between short-term, medium-term, and long-term investments.

2. Forms of investment and investment terms.

3. Selection of partner organizations to carry out investments.

Article 9. The structure of the foreign exchange reserve fund is determined based on:

1. The proportion of various foreign currencies used in trade settlement for goods and services in Vietnam;

2. The proportion of foreign currencies borrowed and repaid by Vietnam;

3. Forecast trends of each type of foreign currency and gold;

4. The proportion of each type of foreign currency in international reserves and international payments of countries worldwide.

Article 10. The foreign currencies of the foreign exchange reserve fund must be freely convertible foreign currencies. The gold of the foreign exchange reserve fund must be international standard gold.

Article 11. Foreign debt instruments and foreign-denominated debt securities of the foreign exchange reserve fund must be issued or guaranteed by foreign governments, foreign banks, financial organizations, or internationally reputable and highly rated international banks.

Article 12. Partner organizations selected to deposit foreign currency and gold, and entrusted with investment must be organizations with high international credit ratings.

Chapter III

MANAGEMENT OF THE FOREIGN EXCHANGE RATE STABILIZATION AND GOLD PRICE FUND

Article 13. The foreign exchange rate and gold price stabilization fund is used in the following cases:

1. Intervening in the domestic foreign exchange market and gold market;

2. Balancing foreign exchange sources with the foreign exchange reserve fund when necessary;

3. Implementing investment operations as stipulated in Article 16 of this Decree.

Article 14. The limit of foreign exchange of the foreign exchange rate and gold price stabilization fund is decided by the Prime Minister. In case the limit of the foreign exchange rate and gold price stabilization fund does not meet intervention requirements, the Governor of the State Bank requests the Prime Minister's approval to transfer foreign exchange from the foreign exchange reserve fund to the foreign exchange rate and gold price stabilization fund.

Article 15. The Governor of the State Bank decides:

1. The structure of the foreign exchange rate and gold price stabilization fund, including:

a) The ratio of reserves in foreign currency and gold;

b) Types of foreign currency and the ratio between different types of foreign currency.

2. Intervening in the domestic foreign exchange market and gold market when necessary to achieve monetary policy objectives at each period, including:

a) Intervention timing;

b) Type of foreign currency intervened;

c) Intervention exchange rates and gold prices;

d) Quantity of foreign currency and gold intervened;

đ) Intervention form: spot, forward, swap, and other foreign exchange transaction forms;

e) Counterparties implementing intervention forms.

3. Transferring foreign exchange from the foreign exchange rate and gold price stabilization fund to the foreign exchange reserve fund when the level of foreign exchange in the foreign exchange rate and gold price stabilization fund exceeds the limit decided by the Prime Minister.

Article 16. Based on the need to use foreign exchange of the foreign exchange rate and gold price stabilization fund for intervention during each period, the Governor of the State Bank decides to use the foreign exchange rate and gold price stabilization fund for short-term investments on domestic and international money markets according to Articles 10, 11, and 12 of this Decree.

Chapter IV

ORGANIZATION OF STATE FOREIGN EXCHANGE RESERVES MANAGEMENT

Article 17. The Prime Minister decides:

1. The annual expected level of State foreign exchange reserves proposed by the Governor of the State Bank;

2. Temporary borrowing from the foreign exchange reserve fund for the State budget to meet urgent needs of the State proposed by the Minister of Finance;

3. The limit of foreign exchange of the foreign exchange rate and gold price stabilization fund;

4. Transfer of foreign exchange from the foreign exchange reserve fund to the foreign exchange rate and gold price stabilization fund upon proposal by the Governor of the State Bank.

Article 18. Based on the objectives of monetary policy and the balance of payments situation of Vietnam, annually, the Governor of the State Bank proposes the level of State foreign exchange reserves to the Prime Minister for approval and is responsible for implementing tasks stipulated in Articles 8, 15, 16, 20, and 21 of this Decree.

Article 19. The Ministry of Finance is responsible for:

1. Inspecting the State Bank's management of State foreign exchange reserves according to assigned functions and responsibilities and compliance with provisions of this Decree;

2. Proposing the Prime Minister to decide temporary borrowing from the foreign exchange reserve fund for the State budget to meet urgent needs of the State.

3. The use and repayment of advances from the Foreign Exchange Reserve Fund shall be carried out in accordance with the Prime Minister's decision.

Chapter V

REPORTING AND ACCOUNTING RECORDS

Article 20. Annually or when necessary, the State Bank shall be responsible for:

1. Reporting to the Prime Minister on the implementation of state foreign exchange reserve management; the actual use of state foreign exchange reserves; these reports shall also be sent to the Ministry of Finance.

2. Reporting to the Government and the Standing Committee of the National Assembly on the fluctuations in state foreign exchange reserves.

Article 21. The State Bank shall be responsible for organizing accounting records for state foreign exchange reserves in accordance with the provisions of the law. Income and expenses arising during the process of managing state foreign exchange reserves shall be recorded as income and expense items in the State Bank's banking operations.

Chapter VI

IMPLEMENTING PROVISIONS

Article 22.

1. This Decree shall take effect fifteen days from the date of signature.

Decision No. 105/CT dated April 10, 1991 of the Chairman of the Council of Ministers regarding the establishment of the Foreign Currency Adjustment Fund has ceased to be effective.

Article 23. The Governor of the State Bank and the Minister of Finance shall be responsible for implementing this Decree.