Decision No. 653/2001/QD-NHNN dated May 17, 2001 of the State Bank issuing the Regulation on organizing the performance of the tasks of managing the State' foreign exchange reserve

DECISION

ISSUING THE REGULATION ON ORGANIZING THE PERFORMANCE OF THE TASKS OF MANAGING THE STATE’S FOREIGN EXCHANGE RESERVE

THE STATE BANK GOVERNOR

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

Pursuant to the Government’s Decree No.15/CP of March 2, 1993 on the tasks, powers and State management responsibilities of the ministries and ministerial-level agencies;

Pursuant to the Government’s Decree No.86/1999/ND-CP of August 30, 1999 on management of the State’s foreign exchange reserve;

At the proposal of the director of the Department for Foreign Exchange Management,

DECIDES:

Article 1.-To issue together with this Decision the Regulation on organizing the performance of the tasks of managing the State’s foreign exchange reserve.

Article 2.-This Decision takes effect 15 days after its signing and replaces the following decisions of the State Bank Governor: Decision No.208/QD-NH7 of July 26, 1995 issuing the Regulation on the foreign currency fund management by the State Bank; Decision No.216/QD-NH7 of August 7, 1995 issuing the Regulation on the gold fund management and control by the State Bank; and the provisions related to the management of the State’s foreign exchange reserve (the foreign exchange reserve fund and the exchange rate and gold price stabilization fund) in the Regulation on overseas foreign currency management by the State Bank, issued together with Decision No.373/1999/QD-NHNN13 of October 20, 1999.

Article 3.-The directors of the Office, the Department for Foreign Exchange Management, the Monetary Policy Department, the Transaction Bureau, the Accountancy-Finance Department, the General Control Department and the Department for Organization, Personnel and Training as well as the heads of the concerned units of the State Bank shall have to implement this Decision.

REGULATION

ON ORGANIZING THE PERFORMANCE OF THE TASKS OF MANAGING THE STATE’S FOREIGN EXCHANGE RESERVE
(Issued together with the State Bank Governor’s Decision No. 653/2001/QD-NHNN of May 17, 2001)

Chapter I

GENERAL PROVISIONS

Article 1.-Scope of regulation

This Regulation provides for:

1. The tasks of the Executive Board for Management of the State’s Foreign Exchange Reserve (hereafter referred to as the Executive Board), the tasks of the concerned functional departments and Transaction Bureau of the State Bank in organizing the performance of the State Bank Governor’s tasks of managing the State’s foreign exchange reserve, as prescribed in the Government’s Decree No.86/1999/ND-CP of August 30, 1999.

2. A number of specific contents of the Government’s Decree No.86/1999/ND-CP of August 30, 1999 regarding the management of the State’s foreign exchange reserve.

Article 2.-Principles for the management of the State’s foreign exchange reserve

1. Ensuring safety for the State’s foreign exchange reserve in original currencies or precious metals, and cost-accounting according to fiscal years;

2. Ensuring high liquidation for readiness to satisfy the foreign exchange demands when necessary;

3. Earning profits through investment operations.

Article 3.-The foreign exchange reserve fund, the exchange rate and gold price stabilization fund

The State’s foreign exchange reserve shall be divided into two funds: the foreign exchange reserve fund and the exchange rate and gold price stabilization fund.

1. The foreign exchange reserve fund is used to ensure the international payment capability, to regulate foreign exchange sources with the exchange rate and gold price stabilization fund when necessary, to effect investment operations and make advances for the State budget so as to meet the State’s urgent demands for foreign exchange under the Prime Minister’s decisions.

2. The exchange rate and gold price stabilization fund is used to intervene in the domestic foreign currency and gold market with a view to stabilizing exchange rates and gold prices towards the objectives of the monetary policies, to regulate foreign exchange sources with the foreign exchange reserve fund when necessary and effect short-term investment operations.

Article 4.-Formulating and approving the State’s annual foreign exchange reserve level

The formulation and submission to the Prime Minister for approval of the State’s annual estimated foreign exchange reserve level shall comply with the following provisions:

1. Basis for formulation of the State’s annual estimated foreign exchange reserve level:

a/ The situation on the payment balance implementation and estimates for the plan year;

b/ The objectives of the monetary policies in the plan year;

c/ The State’s minimum foreign exchange reserve level necessary to ensure safety for international payment according to international practices;

d/ The forecast on domestic exchange rates and gold prices in the plan year and the foreign exchange amount necessary for intervention in the domestic foreign exchange market.

2. The Department for Foreign Exchange Management shall assume the prime responsibility and coordinate with the Monetary Policy Department in estimating the State’s foreign exchange reserve level for the plan year before submitting it to the Governor according to the procedures prescribed in Clause 1, Article 19 of this Regulation for further submission to the Prime Minister for approval.

Chapter II

MANAGEMENT OF ACTIVITIES OF THE STATE’S FOREIGN EXCHANGE RESERVE INVESTMENT

Article 5.-Investment operations of the State’s foreign exchange reserve

1. The State’s foreign exchange reserve shall be invested through the following operations:

a/ Depositing foreign currencies and gold at home and abroad;

b/ Buying and selling foreign currencies and gold in foreign countries;

c/ Buying and selling bills of exchange, debt-acknowledgement papers and/or debt securities in foreign currencies, issued or underwritten by foreign governments, foreign banks, international monetary organizations or banks.

2. The investment operations other than those mentioned in Clause 1 of this Article, which are proposed by the Transaction Bureau to the Governor for approval according to the procedures prescribed in Clause 1, Article 19 of this Regulation, for submission to the Prime Minister.

Article 6.-Formulation of criteria and limits for the State’s foreign exchange reserve investment

1. Once every 6 months or when necessary, the Department for Foreign Exchange Management shall assume the prime responsibility and coordinate with the Transaction Bureau in reevaluating the previous criteria and limits for the State’s foreign exchange reserve investment, formulating new criteria and limits and submitting them to the Governor for decision according to the procedures prescribed in Clause 1, Article 19 of this Regulation, with the following contents:

a/ Criteria for the selection of partnership organizations for the State’s foreign exchange reserve investment;

b/ Foreign currency and gold limits for investment in a partnership organization;

c/ Criteria for the selection of bills of exchange, debt-acknowledgement papers and debt securities in foreign currencies for the State’s foreign exchange reserve investment;

d/ The proportions of investment in bills of exchange, debt-acknowledgement papers and debt securities in foreign currencies over the total amount of the State’s foreign exchange reserve.

2. The head of the Executive Board shall direct the concerned functional departments and Transaction Bureau to organize the application of the State’s foreign exchange reserve investment criteria and limits under the State Bank Governor’s decisions.

Article 7.-Planning, deciding and effecting the investment of the State’s foreign exchange reserve

1. The State’s foreign exchange reserve investment plan shall be elaborated on the basis of:

a/ The structure of the foreign exchange reserve fund and the structure of the exchange rate and gold price stabilization fund, which have already been decided on;

b/ The criteria for selection of partnership organizations for investment; the investment limit at a partnership organization; the criteria for selection of bills of exchange, debt-acknowledgement papers and debt securities in foreign currencies for the State’s foreign exchange reserve investment; the proportions of investment in bills of exchange, debt-acknowledgement papers and debt securities in foreign currencies over the total amount of the State’s foreign exchange reserve, which have already been decided by the Governor.

2. Once every 3 months or when necessary the Transaction Bureau shall have to elaborate the State’s foreign exchange reserve investment plan on the bases mentioned in Clause 1 of this Article and submit it to the head of the Executive Board for decision.

3. Competence to decide on investment

a/ The director of the Transaction Bureau is allowed to decide on the investment amounts valued at under USD 20,000,000 (twenty million US dollar);

b/ The head of the Executive Board shall decide on the investment amounts valued at USD 20,000,000 (twenty million US dollar) or more.

4. The Transaction Bureau shall have to organize the implementation of investment plans; monitor the development in investment activities so as to send monthly or extraordinary reports on market fluctuation to the Governor, the head of the Executive Board and suggest new and appropriate investment plans.

5. Once every 6 months or when necessary, the Transaction Bureau shall have to evaluate the situation on implementation of the investment criteria, limits and proportions mentioned in Article 6 of this Regulation; coordinate with the Department for Foreign Exchange Management in formulating and adjusting investment criteria, limits and proportions to suit the practical situation, ensuring safety and efficiency in the investment process.

Chapter III

MANAGEMENT OF THE FOREIGN EXCHANGE RESERVE FUND

Article 8.-Forming and deciding structure of the foreign exchange reserve fund

1. Bases for the formation of structure of the foreign exchange reserve fund:

a/ The percentages of foreign currencies used in payment for Vietnam’s import and export of goods and services;

b/ The percentages of foreign currencies used in Vietnam’s activities of borrowing and repaying foreign debts;

c/ The forecast on the domestic and overseas trends of fluctuations of the reserved foreign currencies’ exchange rates and gold prices;

d/ The trends of percentage fluctuations of a number of foreign currencies in the international reserve and international payment of the countries in the world.

2. The foreign exchange reserve fund’s structure is composed of the foreign currency and gold reserve rates; types of foreign currencies and their percentages, as well as the short-, medium- and long-term investment proportions.

3. Once every 6 months or when necessary, the Department for Foreign Exchange Management shall assume the prime responsibility and coordinate with the Transaction Bureau in evaluating the existing reserve structure and forming new structure of the foreign exchange reserve fund in conformity with the new situation and submit it to the Governor for decision according to the procedures prescribed in Clause 1, Article 19 of this Regulation.

4. In case of fluctuations on domestic and overseas foreign exchange markets, the Transaction Bureau shall have to report such to the head of the Executive Board and send a notice thereon to the Department for Foreign Exchange Management for consideration and suggestion of a plan for the restructure of the foreign exchange reserve fund, which shall be submitted to the Governor for decision according to the procedures mentioned at Clause 1, Article 19 of this Regulation.

5. The Governor shall decide or authorize the head of the Executive Board to decide on the structure of the foreign exchange reserve fund in each period.

Article 9.-Principles for foreign exchange transfer

The transfer of foreign exchange from the foreign exchange reserve fund to the exchange rate and gold price stabilization fund shall comply with the following provisions:

1. In cases where the foreign exchange amount of the exchange rate and gold price stabilization fund is not enough to meet the intervention requirement, the Department for Foreign Exchange Management shall propose to the Governor the transfer of foreign exchange from the foreign exchange reserve fund to the exchange rate and gold price stabilization fund according to the procedures mentioned in Clause 1, Article 19 of this Regulation, so that the latter shall submit it to the Prime Minister for approval.

2. After obtaining the Prime Minister’s approval, the Transaction Bureau shall effect the transfer of foreign exchange from the foreign exchange reserve fund to the exchange rate and gold price stabilization fund by the decision of the State Bank Governor.

Article 10.-Making advances from the foreign exchange reserve fund for the State budget:

The advance from the foreign exchange reserve fund for the State budget as well as the management and recovery thereof shall be effected as follows:

1. The Department for Foreign Exchange Management shall draft the State Bank Governor’s decision on making advances from the foreign exchange reserve fund for the State budget and submit it to the Governor for signing for promulgation when having all the following legal bases:

a/ The Prime Minister’s decision on making advances from the foreign exchange reserve fund for the State budget;

b/ The Finance Ministry’s official dispatch to the State Bank, requesting the latter to make advances for the State budget.

2. The Transaction Bureau shall make advances from the foreign exchange reserve fund for the State budget under the State Bank Governor’s decision.

3. The Transaction Bureau shall account, monitor and recover advances already made for the State budget.

Chapter IV

MANAGEMENT OF THE EXCHANGE RATE AND GOLD PRICE STABILIZATION FUND

Article 11.-Forming and deciding on the structure of the exchange rate and gold price stabilization fund

1. Bases for the formation of the structure of the exchange rate and gold price stabilization fund:

a/ The forecast on domestic and overseas exchange rate fluctuations of the reserved foreign currencies;

b/ The forecast on fluctuations of domestic and overseas gold prices;

c/ The foreign currencies to be used for intervention.

2. The contents of the structure of the exchange rate and gold price stabilization fund include: the foreign currency and gold reserve rates, the percentages of material gold reserved in the country and deposited overseas, the types and percentages of foreign currencies, the demand and time (under 1 year) deposit rates.

3. Once every 6 months or when necessary, the Department for Foreign Exchange Management shall form the structure of the exchange rate and gold price stabilization fund and submit it to the head of the Executive Board for decision.

Article 12.-Export, import of international-standard gold

1. Based on the demand for intervention in the domestic gold market, the national security requirements and the structure of the exchange rate and gold price stabilization fund, the Department for Foreign Exchange Management shall determine the volume of international-standard gold to be exported or imported and submit it to the Governor for decision according to the procedures mentioned in Clause 1, Article 19 of this Regulation.

2. The Transaction Bureau shall export or import gold under the State Bank Governor’s decision and send reports on the implementation situation to the Governor, and concurrently to the head and other members of the Executive Board.

Article 13.-Elaborating and implementing the plan for intervention in the foreign exchange market

1. The State Bank shall intervene in the domestic foreign exchange market through the following operations:

a/ Buying foreign exchange with Vietnam dong;

b/ Selling foreign exchange for Vietnam dong.

2. Based on the fluctuations of domestic exchange rates and gold prices, the objectives of the monetary and exchange rate policies in each period, the Department for Foreign Exchange Management shall propose an intervention plan on foreign exchange purchase or sale to the head of the Executive Board.

3. The contents of the intervention plan on foreign exchange purchase or sale include: The time for intervention, the type of foreign currency used for intervention, the intervening exchange rate or gold price, the amount of foreign currencies or gold used for intervention, the intervention forms (spot, swap, forward and other forms of foreign exchange transaction) and partner to effect the intervention.

4. The head of the Executive Board shall approve the intervention plan before submitting it to the Governor for approval.

5. The Transaction Bureau shall carry out the intervention plan and report to the State Bank Governor and the head of the Executive Board thereon.

6. In case of fluctuations on the domestic and overseas foreign exchange markets, the Transaction Bureau shall promptly notify them to the head of the Executive Board and at the same time send the Department for Foreign Exchange Management reports on the situation of foreign exchange and gold supply and demand as well as developments on the market to serve as basis for the management and suggestion of a plan for timely intervention.

Article 14.-Operation of inter-bank foreign currency market

1. The Transaction Bureau shall have to operate the inter-bank foreign currency market; oversee the exchange rate changes as well as supply and demand relations on the market so as to suggest the daily purchase and sale of foreign currencies by the State Bank to the head of the Executive Board for decision.

2. The Transaction Bureau shall have to notify the Department for Foreign Exchange Management of the foreign currency amount purchased or sold daily by the State Bank on the inter-bank foreign currency market so that the latter shall make a report thereon and submit it to the Governor for signing and further submission to the Prime Minister.

Article 15.-Transfer of foreign exchange from the exchange rate and gold price stabilization fund to the foreign exchange reserve fund

By the 10th of the first month of every quarter at the latest, when the exchange rate and gold price stabilization fund exceeds the limit already approved by the Prime Minister, the Transaction Bureau shall propose the transfer of the excessive foreign exchange reserve amount to the foreign exchange reserve fund and effect such transfer once it is approved by the head of the Executive Board.

Chapter V

COMPETENCE TO MANAGE THE STATE’S FOREIGN EXCHANGE RESERVE

Article 16.-Contents falling under the deciding competence of the Prime Minister:

1. The State’s annual estimated foreign exchange reserve rate submitted by the State Bank Governor;

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

3. The transfer of foreign exchange from the foreign exchange reserve fund to the exchange rate and gold price stabilization fund at the proposal of the State Bank Governor;

4. The advance from the foreign exchange reserve fund for the State budget to meet the State’s unexpected and urgent demands as submitted by the Minister of Finance;

5. The new forms and operations of the foreign exchange reserve investment.

Article 17.-Contents falling under the competence of the State Bank Governor

1. Issuing decisions on making advances from the foreign exchange reserve fund for the State budget under the Prime Minister’s decisions;

2. Deciding on the export and import of international-standard gold belonging to the State’s foreign exchange reserve;

3. Deciding on the plan on intervention in the domestic foreign exchange market;

4. Deciding on the structure of the foreign exchange reserve fund;

5. Deciding on the criteria and limit for the State’s foreign exchange reserve investment;

6. Approving and signing for submission to the competent authorities the reports mentioned in Clause 2, Article 21 of this Regulation.

Article 18.-Contents falling under the competence of the head of the Executive Board

1. Deciding on the structure of the exchange rate and gold price stabilization fund;

2. Deciding on the structure of the foreign exchange reserve fund in each period under the State Bank Governor’s authorization;

3. Deciding on the investment plans and investment amounts valued at USD 20,000,000 (twenty million US dollar) or more;

4. Deciding on the daily purchase and sale of foreign currencies by the State Bank on the inter-bank foreign currency market as stipulated in Article 14 of this Regulation.

5. Directing the concerned functional departments and Transaction Bureau to organize the implementation of criteria and limits for the State’s foreign exchange reserve investment under the State Bank Governor’s decision;

6. Deciding on the transfer of foreign exchange from the exchange rate and gold price stabilization fund to the foreign exchange reserve fund in cases where the foreign exchange amount of the exchange rate and gold price stabilization fund exceeds the limit already decided by the Prime Minister.

Article 19.-Deciding on the management of the State’s foreign exchange reserve

1. Regarding the contents falling under the Governor’s approving or deciding competence:

The concerned functional departments and the Transaction Bureau shall prepare contents according to their assigned tasks prescribed in this Regulation and submit them, through the Executive Board, to the Governor for approval or decision.

2. Regarding the contents falling under the competence of the head of the Executive Board:

The concerned functional departments and the Transaction Bureau shall prepare contents according to their assigned tasks and submit them to the head of the Executive Board for decision.

Chapter VI

INFORMATION SUPPLY AND REPORTING REGIME

Article 20.-Supply of information

The supply of information in service of the management of the State’s foreign exchange reserve shall be effected as follows:

1. The Monetary Policy Department shall supply the Department for Foreign Exchange Management with:

a/ By the 25th of the last month of every quarter at the latest: The estimated data on the payment balance implementation in the quarter and the estimates for the following quarter;

b/ By the last working day of the first month of every quarter at the latest: The data and situation on the actual payment balance implementation of the previous quarter, the monetary data of the entire branch and the State Bank in the previous quarter;

c/ By November 20 of every year at the latest: The estimated data on the payment balance implementation in the year, and the estimates for the following year.

d/ By February 10 of every year at the latest: The data and situation on the actual payment balance implementation in the previous year, the monetary data of the entire branch and the State Bank in the previous year.

2. The Transaction Bureau shall supply the Department for Foreign Exchange Management, the Monetary Policy Department and the General Control Department with:

a/ By the 5th of every month at the latest: The previous month’s data on the foreign exchange reserve fund and the exchange rate and gold price stabilization fund;

b/ To daily supply the Department for Foreign Exchange Management with data on the situation of operations of the inter-bank foreign currency market of the day before and the evaluation of foreign currency supply and demand on the market.

3. By the 20th of the first month of every quarter at the latest or when necessary, the Transaction Bureau shall supply the Department for Foreign Exchange Management with the documents on the previous quarter’s evaluation and grading of agency banks, including: the evaluation documents of the Transaction Bureau (based on the evaluation criteria of international credit grading companies such as Moody’s Investors, Standard and Poor’s or International Bank Credit Agency- IBCA) and documents of the above-mentioned international grading organizations.

4. The Department for Foreign Exchange Management and Transaction Bureau shall supply the General Control Department with necessary information on the State’s foreign exchange reserve according to the requirements on internal control.

Article 21.-Reporting regime

1. The Department for Foreign Exchange Management shall send to the Governor and the head of the Executive Board (concurrently to the Monetary Policy Department, the General Control Department) monthly, quarterly and annual reports on the situation of the State’s foreign exchange reserve management and the estimates for the plan year according to the following deadlines:

a/ By the 10th of the following month at the latest, for monthly reports;

b/ By the 15th of the first month of the following quarter, for quarterly reports;

c/ By January 25th of the following year, for annual reports.

2. Annually or when necessary, the Department for Foreign Exchange Management shall assume the prime responsibility and coordinate with the Monetary Policy Department, the Transaction Bureau and the Accountancy-Finance Department in elaborating and submitting the following reports to the Governor for approval and further submission to the competent authorities according to the procedures mentioned in Clause 1, Article 19 of this Regulation:

a/ The report on the situation of the State’s foreign exchange reserve management; the actual situation on the use of the State’s foreign exchange reserve, to be submitted to the Prime Minister (concurrently to the Finance Ministry);

b/ The report on the situation of the State’s foreign exchange reserve fluctuation, to be submitted to the Government and the National Assembly Standing Committee.

3. By February 15th of every year at the latest or when requested, the State Bank shall have to submit to the Prime Minister and the National Assembly Standing Committee the reports mentioned at Clause 2 of this Article.

Chapter VII

ORGANIZATION OF IMPLEMENTATION

Article 22.-The Executive Board for Management of the State’s Foreign Exchange Reserve

1. The State Bank Governor shall set up the Executive Board for Management of the State’s Foreign Exchange Reserve, consisting of 5 members: its head being a leader of the State Bank, the director of the Department for Foreign Exchange Management, the director of the Monetary Policy Department, the director of the Transaction Bureau and its secretary.

2. The Executive Board functions to:

a/ Advise the State Bank Governor on the contents prescribed in Articles 16 and 17 of this Regulation;

b/ Administer the performance of the State’s foreign exchange reserve management tasks according to the State Bank Governor’s stipulations.

3. The tasks and operation regulation of the Executive Board shall be stipulated by the State Bank Governor.

Article 23.-Responsibilities of the departments and Transaction Bureau

1. The Monetary Policy Department shall assume the prime responsibility and coordinate with the concerned units in reporting to the Governor the money amount supplied in each period for the objective of increasing the State’s foreign exchange reserve.

2. The Accountancy-Finance Department shall have to provide detailed guidance on cost-accounting of the State’s foreign exchange reserve according to two funds, to be submitted to the Governor for decision.

3. The Transaction Bureau shall have the responsibility to:

a/ Formulate the internal management principles to organize the State’s foreign exchange reserve management according to the provisions of this Regulation.

b/ Organize the cost- accounting of the arising operations related to the State’s foreign exchange reserve according to the State Bank Governor’s stipulations.

4. The Department for Organization, Personnel and Training shall assume the prime responsibility and coordinate with the Department for Foreign Exchange Management in drafting a decision to set up the Executive Board for Management of the State’s Foreign Exchange Reserve and the Board’s operation regulation, to be submitted to the State Bank Governor for promulgation.

5. The Department for General Control shall conduct regular or extraordinary inspection of the State’s foreign exchange reserve management by the departments and Transaction Bureau according to their assigned tasks and their observance of the provisions of the Government’s Decree No.86/1999/ND-CP of August 30, 1999 on the State’s foreign exchange reserve management and this Regulation.

Article 24.-The amendment and supplement to this Regulation shall be decided by the State Bank Governor.