Cryptocurrency’s Rise

Cryptocurrency in Vietnam is problematic. For one thing, it’s illegal. But that’s not the full story nor does it promise to be the last word on the issue. Vietnam is a large market, the fifteenth-most populous country in the world, large enough to add considerable support to any product or service which it adopts. In fact, in the first few years of Bitcoin four countries in Asia: Japan, Korea, Taiwan, and Vietnam comprised 80% of all Bitcoin transactions globally. Vietnam was gungho on cryptocurrency. I remember reading article after article about different domestically developed cryptocurrencies at the time. It was the bold new frontier and the success of Bitcoin meant that everyone wanted a piece. Even the government got involved.

As Bitcoin, and cryptocurrency in general, was not defined in law it was not provided for in the tax laws. Cryptocurrency companies were operating at huge profits and paying little to no taxes as they were operating in a business line that wasn’t contemplated under existing regulations. That didn’t stop a tax office in Ben Tre from imposing a tax on a local cryptocurrency company. They imposed taxes of over 2.5 billion VND on one company in the province. A local court, however, ruled that the tax office’s interpretation of cryptocurrency as a “good” for tax purposes was incorrect and that the legislation to tax cryptocurrency did not yet exist. The court overturned the tax bill and the company made off without the massive obligation.

In August 2017, Prime Minister Phuc issued a decision to promote the development of a legal framework for managing virtual assets, cryptocurrencies, and electronic currencies. This would not only allow the government to properly tax cryptocurrency companies and take financial advantage of the large windfalls in the industry, but to regulate the development, deployment, and use of cryptocurrencies as actual forms of payment in Vietnam. The future of cryptocurrency in Vietnam was bright.

The Fall of Cryptocurrency in Vietnam

But amidst the boom, profiteers and con men made a play. Several cryptocurrencies in Vietnam went bust and the investors lost their money and a few were outright frauds on locals designed simply to pinch funds from poor hopefuls with big dreams. It was enough that on 30 October 2017 the State Bank of Vietnam, or SBV, announced that the use of cryptocurrency in Vietnam as a form of payment would not be considered a legal form of currency.

At the time, and even now, forms of payment other than cash were defined in decree 101/2012/ND-CP. While that decree listed a number of forms of acceptable non-cash payments, it also included exclusion of all forms of payment that were not compliant with the law. Specifically:

according to the regulations of the law as provided, Bitcoin and other similar types of cryptocurrency are not methods of payment compliant with law in Vietnam; issuing, supplying, using Bitcoin and other similar types of cryptocurrency as forms of payment is an act prohibited in Vietnam.

The SBV further announced that issuing, providing, or using cryptocurrency would be subject to an administrative penalty of from 150 to 200 million VND and could also trigger criminal liability. According to the amended criminal code, issuance, provision, or use of cryptocurrency that causes harm to other people (including enterprises) from between 100 to 300 million VND will result in a criminal fine of between 50 to 300 million VND or imprisonment for six months to three years. This strict regime of prohibition entered effect on 1 January 2018. Cryptocurrency in Vietnam was dead.

Since then the SBV has issued a number of regulations to ensure that cryptocurrency as a form of payment does not creep back into Vietnam’s economy. Most recently, the SBV issued a directive just last week to organizations issuing bank cards, intermediary payment service providers, and representative offices of foreign banks about the prevention of cryptocurrency transactions. This directive couches cryptocurrency in the language of suspicion and groups it with acts like money laundering and the funding of terrorism. It admonishes relevant organizations to inspect, supervise, and check all transactions to ensure that they are terminated if they show any signs of involving illegal activity, including cryptocurrency. It is an effort that spreads from the highest levels of government to the grassroots and, as Covid-19 before it, we must fight its use like we would fight an invader.

A Glimmer of Hope

But the future of cryptocurrency in Vietnam isn’t all glum. Midway through 2020, there was a glimmer of hope for an officially shunned activity. On May 10th or 11th, the Ministry of Finance announced that it would set up a committee to “be in charge of studying and proposing policies to manage virtual assets and crypto currencies (sic).” According to Viet Nam News,

The group had nine members, lead by Phạm Hồng Sơn, deputy chairman of the State Securites Commission. Other members are from the State Securities Commission, the General Department of Taxation, State Bank of Việt Nam’s Department of Banking and Financial Institutions and Legal Department, Việt Nam Customs and the National Institute for Việt Nam Finance.

At least one ministry, then, is interested in something more than an outright ban on cryptocurrency. Unfortunately, a Google search does not return any additional news on the committee or its findings and there does not seem to be any other movement in other ministries or in the government to change existing policies regarding cryptocurrency in Vietnam.

The Future of Cryptocurrency in Vietnam

Cryptocurrency is based on the blockchain, a distributed ledger that copies itself as it grows and is extremely difficult, if not impossible, to erase or fabricate changes to existing entries. That technology is not banned in Vietnam. In fact, it is one of the proposed subjects of a regulatory sandbox that is under consideration by the government. That sandbox would allow blockchain developers to work with government regulators to ensure that their activities are in compliance with laws and to either amend existing laws or draft new laws to regulate developing technologies. The sandbox has yet to be approved, however, and the pace of regulatory adoption in Vietnam is generally slow.

If and when the sandbox is adopted, blockchain will begin to see acceptance in government circles. The framework and the undergirding basis for the technology will be developed and the government will grow comfortable with the concepts involved. Once that happens, it will have in place the ability to transfer those laws, in large measure, to a possible reopening of the gates to cryptocurrency. Additional laws will be required, however, to regulate what is arguably a financial instrument. Regulations of the technology will not be enough. As discussed earlier, tax regulations will be required, transactional guidelines and international standards will need to be adopted. Much work will need to be done before cryptocurrency in Vietnam is readmitted to the family of acceptable payment forms.

Whether that change in the policy happens in the near future or farther out is difficult to say. Other countries in the region have allowed cryptocurrency and developed legal guidelines for its use. Malaysia and Singapore, Indonesia and the Philippines all allow cryptocurrencies and regulate them. But Vietnam is not alone in prohibiting cryptocurrency. Thailand, Laos, Myanmar, and Cambodia, too, do not allow their use to date. Many of those countries have small economies and limited government resources, however, making it difficult to develop the regulatory bodies necessary to govern the deployment of a new form of currency. Vietnam, and Thailand too, is a large country with an established tax base. It is capable of developing the regulatory organs necessary.

In addition, Vietnam is keen to move into the world of technological advancement. In an article posted on VN Express International yesterday, analysts predicted that if Vietnam fostered the creation of new technologies rather than simply the manufacturing of foreign technological goods, the rate of growth of the information and technology sector would surpass the rate of growth of the country’s GDP by two to four times. And the government wants just that. And increasingly, cryptocurrency is the currency of technology. With the recent boom in Bitcoin’s value and the concomitant spike in alternative cryptocurrencies, the validity and legitimacy of cryptocurrency was buoyed. If not the future, cryptocurrency is part of it and by continuing to turn its back on that future Vietnam might just be cutting its own throat.

Vietnam’s government must balance the possibility of failed ventures and fraud against the advancements that can occur by adopting a technology that is increasingly proven and increasingly vital to the technological economy. Whether the government decides to continue the cryptocurrency ban or to repeal the ban and adopt legislation to regulate it will have a major impact on Vietnam’s ability to adapt to the future of money and to remain an important actor in the global economy as a whole.