Report: Vietnam's PM asks State Bank to trial digital currency on blockchain

Vietnamese news outlets have reported that the country’s prime minister, Phạm Minh Chính, has tasked the State Bank with studying and conducting a pilot for a digital currency.

The State Bank of Vietnam is reportedly set to become the latest central bank to delve into explorations of the feasibility and operationally of central bank digital currencies (CBDCs). 

Its brief, distinct from some other countries, is to trial a digital currency that would expressly be built on blockchain technology, rather than a centralized protocol.

According to a July 3 report from the English-language daily Viet Nam News, Prime Minister Phạm Minh Chính announced the initiative as part of his wider e-government development strategy. The central bank is expected to work on the development and implementation of the pilot from 2021–2023.

Vietnamese politicians’ embrace of blockchain technologies in principle remains distinct from their broad hostility to the decentralized currencies that have popularized the underlying protocols. The country banned Bitcoin (BTC) as a means of payment in 2018, while retaining individuals’ and enterprises’ rights to privately invest in crypto.

The ban was soon followed by a directive to credit institutions to restrict services provided to digital currency-related activities in order to mitigate money laundering risks. Despite both moves, there has not been a formal regulatory framework in place for crypto exchanges operating in the country.

Since spring 2020, this hostile but relatively off-hands approach has begun to shift. In May of that year, Vietnam’s Ministry of Finance agreed to establish a research group charged with studying and making policy proposals regarding cryptocurrencies and digital assets. That group, which includes the State Bank, also includes the country’s securities regulator, the Department of Banking and Financial Institutions, the General Department of Vietnam Customs and others.

Huỳnh Phước Nghĩa, deputy director of the Institute of Innovation at the University of Economics Ho Chi Minh City (UEH), told reporters that as cashless payments continue to increase in the country, recognition of digital currencies by the State Bank would help to further accelerate this process. In Nghĩa’s view, “digital money is an inevitable trend” and conducting the pilot will help the government to assess the pros and cons of various approaches and to explore appropriate management mechanisms.

Related: Vietnam’s ministry of education to record certifications on blockchain

Another interviewee, Lê Đạt Chí, who is deputy head of UEH’s Finance Faculty, stressed that acting fast would be necessary for the country to be competitive as momentum behind CBDCs continues to grow. 

 Viet Nam News contends that CBDC issuance could be useful for smaller countries in a global system dominated by the United States dollar, and, to a lesser extent, the euro and yen. Chí however, in addition to calling for an acceleration of CBDC study and development, stressed the potential risks for the country’s financial and monetary security. A representative from NextTech Group — a group of companies focused on digitized commerce across South East Asia— argued that it is necessary for Vietnam to determine an official definition for cryptocurrency.

Prior to the government setting up its research group in May 2020, Vietnamese police officials urged citizens not to participate in crypto investment schemes. This March, Vietnam’s Ministry of Finance itself warned the public about the risks of cryptocurrency investment, given the industry’s still-unregulated status in the country.

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