On the foreign exchange front, the State Bank of Vietnam (SBV) seems to be continuing the policy of managed depreciation of the VND. On 23 March 2009 it widened the permitted trading band for US dollar/VND spot transactions to 5 per cent. But at the same time, it clamped down on more exotic corners of the foreign exchange market. Market hearsay would have it that, during periods of low US dollar liquidity, various banks have used ‘creative’ structures to effectively do VND/ US dollar spot transactions outside the trading band. The SBV had previously expressed its displeasure at this practice and had specifically banned the practice of doing US dollar/VND trades via a third currency. Then, on 18 March 2009, the SBV issued Decision 1819, which generally prohibits the use of ‘derivatives’ to evade the trading band for US dollar/VND spot transactions.
The extremely general language of Decision 1819 (there is no guidance on which types of ‘derivatives’ are prohibited) will no doubt save the SBV the trouble of having to issue specific new prohibitions every time a clever bank thinks of a new way to evade the band. However, it is at least clear that for now one of the prohibited derivatives is a VND/US dollar option. Vietnamese law generally allows options only between two foreign currencies, and not between VND and a foreign currency. Nevertheless, the SBV had started issuing official approvals allowing certain banks to do VND/foreign currency options on a ‘pilot basis’.
On 18 March 2009, the same date as Decision 1819, the SBV also issued Decision 1820. In this Decision it backtracked and ordered all banks that were previously allowed to do VND/foreign currency option trades to cease performing them from 23 March 2009. Decision 1820 does contain a hint that future legislation to replace the currently applicable Decision 1452 on foreign exchange will contain a framework for VND/foreign currency options.
Meanwhile, it must be assumed that US dollar/VND forwards not within the trading band are still legal, given that the trading band has always been expressed to apply to US dollar/VND spots only and forwards are by definition not a spot.