Analyzing the Global Monetary Systems, International Financial Institutions and Implications for Vietnam

Vietnam is a rapidly developing country that has undergone significant economic transformations in recent decades, fueled by exports, foreign direct investment, and a growing domestic market. However, these developments have also exposed Vietnam to the challenges and risks that come with being integrated into the global financial system. As such, this paper aims to explore the global monetary systems and financial institutions and their implications for Vietnam. The study reviews the existing literature on the topic, collects relevant data on Vietnams economic indicators, and analyzes the structure and functioning of the global monetary system and their impact on Vietnams exchange rate and trade competitiveness. The study also evaluates the role and effectiveness of financial institutions such as the World Bank, IMF, and Asian Development Bank in supporting Vietnams economic development and stability, and assesses the implications of the global monetary system and financial institutions on Vietnams economy. The study concludes with policy recommendations to mitigate potential risks and maximize the benefits of Vietnams integration into the global financial system, including strengthening domestic financial institutions, diversifying the economy, and reducing reliance on exports.

FOREIGN TRADE UNIVERSITY

FACULTY OF BANKING AND

FINANCE -*** -

TABLE OF CONTENTS

ABSTRACT 1

INTRODUCTION 2

CHAPTER 1: OVERVIEW OF THE INTERNATIONAL MONETARY SYSTEM AND FINANCIAL INSTITUTIONS 5

1.1 Overview of the monetary system 5

1.1.1 Definition 5

1.1.2 Development history 5

1.1.3 Features 7

1.1.4 Functions 8

1.2 Overview of financial institutions 12

1.2.1 Definition 12

1.2.2 Types of financial institutions 13

1.2.3 Functions 15

1.2.4 Regulations 17

CHAPTER 2: THE SITUATION IN VIETNAM AND AROUND THE GLOBE 20

2.1 Monetary system and financials instituions in Vietnam 20

2.1.1 The monetary system in Vietnam 20

2.1.2 Financial institutions in Vietnam 22

2.2 European money market 25

2.2.1 Overview 25

2.2.2 General features of the European money market 26

2.2.3 International financial organizations 29

CHAPTER 3: RECOMMENDATION 42

CONCLUSION 44

REFERENCE 45

ABSTRACT

Vietnam is a rapidly developing country that has undergone significanteconomic transformations in recent decades, fueled by exports, foreign directinvestment, and a growing domestic market However, these developments have alsoexposed Vietnam to the challenges and risks that come with being integrated into theglobal financial system As such, this paper aims to explore the global monetarysystems and financial institutions and their implications for Vietnam

The study reviews the existing literature on the topic, collects relevant data onVietnam's economic indicators, and analyzes the structure and functioning of theglobal monetary system and their impact on Vietnam's exchange rate and tradecompetitiveness The study also evaluates the role and effectiveness of financialinstitutions such as the World Bank, IMF, and Asian Development Bank in supportingVietnam's economic development and stability, and assesses the implications of theglobal monetary system and financial institutions on Vietnam's economy The studyconcludes with policy recommendations to mitigate potential risks and maximize thebenefits of Vietnam's integration into the global financial system, includingstrengthening domestic financial institutions, diversifying the economy, and reducingreliance on exports

The study provides insights into the challenges and opportunities that Vietnamfaces in the global financial landscape and highlights potential policy interventions toensure sustainable economic growth and stability

Overall, the paper concludes that Vietnam's integration into the global financialsystem presents both opportunities and challenges While Vietnam has madesignificant progress in recent years in terms of economic growth and development, itmust continue to navigate a complex and rapidly changing global financial landscape

to achieve sustained success in the long term

INTRODUCTION

1 Rationale of the study

Analyzing the global monetary systems and financial institutions is crucial forunderstanding the economic dynamics of different countries, including Vietnam.Vietnam is a rapidly developing country that has undergone significant economictransformations in recent decades Its economic growth has been fueled by a range offactors, including exports, foreign direct investment, and a growing domestic market.However, these developments have also exposed Vietnam to the challenges and risksthat come with being integrated into the global financial system

One of the most significant implications of the global monetary system forVietnam is the impact on its exchange rate As a relatively small economy, Vietnam isvulnerable to fluctuations in the value of its currency The global monetary system,therefore, has a significant influence on Vietnam's exchange rate and, in turn, its tradecompetitiveness For example, if the US dollar strengthens, this may make Vietnam'sexports more expensive and less competitive, which could negatively affect itseconomy

Moreover, the global monetary system can also impact Vietnam's access tofinancing Financial institutions such as the World Bank and the InternationalMonetary Fund (IMF) play a critical role in providing financial assistance todeveloping countries such as Vietnam Changes in the policies of these institutions orfluctuations in global interest rates can affect Vietnam's ability to access financing andmay result in increased borrowing costs

Vietnam's financial institutions also face challenges in the global financialsystem The country's banking sector, for example, is still in the early stages ofdevelopment and is vulnerable to financial shocks The global monetary system canimpact the stability of Vietnam's financial institutions, particularly in times ofeconomic crisis Moreover, the increasing integration of financial markets globallymeans that shocks in one part of the world can quickly spread to other regions,including Vietnam

Thus, analyzing the global monetary systems and financial institutions is crucial

for understanding the implications for Vietnam's economy The country is vulnerableto

fluctuations in the exchange rate, changes in financing policies, and instability in itsfinancial institutions Therefore, policymakers in Vietnam must carefully monitor theglobal financial system and take steps to mitigate these risks This may includedeveloping stronger financial institutions, diversifying the economy, and reducingreliance on exports

2 Objective of the study

This study aims to analyze the global monetary systems and financialinstitutions and their implications for Vietnam in order to gain a comprehensiveunderstanding of how the global financial system affects Vietnam's economy Thisanalysis will enable policymakers, economists, and investors to identify the risks andopportunities associated with Vietnam's integration into the global financial systemand develop strategies to mitigate potential risks while maximizing the benefits ofglobalization Through this objective, we aim to provide insights into the challengesand opportunities that Vietnam faces in the global financial landscape and highlightpotential policy interventions to ensure sustainable economic growth and stability

3 Methodology of the study

In this study, to analyze the global monetary systems and financial institutions,

we will employ the qualitative method, including material study and statistics,generalizing descriptions, inductive and deductive reasoning, and methods foranalysis, comparison, and contrast These techniques are integrated with systematictheory and logical reasoning to provide answers to pertinent problems in the research.The study also uses findings from other related scientific research projects inaccordance with existing principles to develop a comprehensive understanding of theglobal monetary systems and financial institutions, and their implications for Vietnam

4 Scope of the study

In order to achieve the objective above, we intend to observe and analyze theinternational monetary system and financial institutions around the world, and also thecurrent situation of Vietnam so as to provide the insights into the challenges andopportunities that Vietnam faces in the global financial landscape

5 Structure of the study

This research consists of 3 main parts:

Chapter 1: An overview of the monetary system and financial institutionsChapter 2: Situation in Vietnam

Chapter 3: Recommendation

In its widest sense, the international monetary system includes the broadnetwork of banking and commercial practices through which day-to-day internationaltransactions are undertaken The pricing of international shipments, the extension ofcredit, and the settlement of accounts take place in terms of many currencies Mainly,these are the currencies of Western Europe and the United States, and moreparticularly, within that group, the major “trading currencies,” i.e., the U.S dollar, thepound sterling, and the French franc.

In a narrower sense, the international monetary system is the complex ofinternational rules and understandings which have evolved in an effort to ensure, byinternational agreement, a fair and efficient method of conducting internationaltransactions In this sense, the present system of international cooperation andconsultation, which arose to a large extent from the 1944 Bretton Woods Conference,

is in sharp contrast to that of the interwar period, particularly the 1920’s, whencountries pursued their financial policies with little regard for, and little understanding

of, the effects that these policies might have on other countries

1.1.2 Development history

1.1.2.1 The Gold Standard

Between 1880 and 1914, the gold standard was referred to as the monetary systemthrough which each country could fix the value of their currency in terms of gold The

exchange rate was based on the determined value For example, if the U.S fixed 1ounce

be easy Moreover, the fixed exchange rates made international trade easier under thegold standard.

1.1.2.2 The War Period

Between 1925-1922 between the world wars, the gold standard started losing itsway The war had created a dent in the world economy, and every country wanted toexport more to revamp and rebuild their economies

Therefore, they significantly depreciated their currencies’ value to exportextensively and benefit from economies of scale This period of chaos and rebuildingsaw exchange rates fluctuate and competitive devaluation unlike ever before

1.1.2.3 The Bretton Woods System

Only a few nations had the resources to survive after two world wars, while othersstruggled to feed their citizens In times like these, the United States of America andthe United Kingdom started discussing the possibilities and ways to rebuild the worldeconomy after two disastrous wars in the mid-1940s

The United Nations formulated the new international monetary system at theBretton Woods Conference in Bretton Woods, New Hampshire The Bretton-woodsConference led to the creation of a dollar-based fixed exchange rate system Under thissystem, the U.S dollar was backed by reserve gold All other currencies did not have

to maintain a gold reserve for conversion Therefore, the conversion rates wereminimal

1.1.2.4 The Jamaica System

Around 1971, high inflation rates and a trade deficit led to a gold process hike.Therefore, the U.S had to stop the convertibility of gold Owing to factors like these,

the Bretton Woods system collapsed

Hence the global economy moved towards a flexible exchange rate system in

1972 and by 1976 They formalized the system through the convention in Jamaica.Under the Jamaica or floating rate system, demand and supply would affect thecurrency exchange rates

1.1.3 Features

The international monetary system is a complex system that is constantlyevolving to meet the changing needs of the global economy Some of the key features

of the international monetary system include:

 Multiple exchange rate regimes: The international monetary system includes avariety of exchange rate regimes, such as floating exchange rates, fixedexchange rates, and managed exchange rates Each exchange rate regime has itsown advantages and disadvantages and is adopted by countries based on theirspecific economic needs

 Global financial institutions: The international monetary system includes anumber of global financial institutions such as the International Monetary Fund(IMF), the World Bank, and the World Trade Organization (WTO) Theseinstitutions work to promote economic cooperation, provide financial assistance

to countries in need, and establish common rules and standards for trade andfinance

 Dominance of major currencies: The US dollar is the dominant global currencyand is used for a significant portion of international trade and finance Othermajor currencies, such as the euro and the Japanese yen, also play importantroles in the international monetary system

 Capital mobility: The international monetary system enables the movement ofcapital across borders, allowing investors to allocate their capital globally andpromote economic growth and development in different parts of the world

 Financial globalization: The international monetary system is closely linked tothe process of financial globalization, which has led to increased cross-borderinvestment, trade, and financial integration

 Economic interdependence: The international monetary system reflects thegrowing economic interdependence between countries, withtrade and financebecoming increasingly globalized This interdependence means that economicdevelopments in one part of the world can have significant impacts on otherparts of the world

 Volatility and crisis management: The international monetary system is subject

to volatility and periodic crises, such as financial crises, currency crises, anddebt crises The system has mechanisms in place to manage these crises, such asfinancial assistance from the IMF, central bank interventions, and coordinatedpolicy responses

 Cooperation and coordination: The international monetary system requiresongoing cooperation and coordination among countries to function effectively.This includes coordination of monetary policies, exchange rate policies, and tradepolicies, as well as cooperation in addressing global economic challenges such

as climate change, inequality, and financial instability

1.1.4 Functions

1.1.4.1 Facilitates the free flow of different currencies in the open market

The international monetary system facilitates the free flow of differentcurrencies in the open market This is because the system is designed to allowcurrencies to be exchanged between countries, which enables international trade andinvestment to take place

Under the current system of floating exchange rates, the value of currencies isdetermined by market forces of supply and demand, meaning that their exchange ratescan fluctuate based on a variety of factors, including economic conditions, politicalevents, and investor sentiment

The ability to freely exchange currencies is essential for businesses andindividuals engaged in international trade and investment, as it allows them to convertone currency into another to pay for goods and services, or to invest in foreign assets

While the international monetary system is designed to facilitate the free flow

of currencies in the open market, there are some factors that can limit the ability

of

individuals and businesses to exchange currencies Despite these challenges, theinternational monetary system has played a critical role in facilitating global economicintegration and promoting international trade and investment By allowing currencies

to be freely exchanged,the system has enabled businesses and individuals to engage incross-border transactions, which has led to increased economic growth and prosperityaround the world Additionally, institutions like the International Monetary Fund(IMF) and World Bank provide support and guidance to member countries to helpensure the stability of the international financial system

1.1.4.2 Facilitate global trade of goods, services, and money

The international monetary system plays a crucial role in facilitating globaltrade of goods, services, and money in several ways

Firstly, it provides a means of exchanging currencies between countries Whencountries engage in trade, they often need to exchange their currencies to pay forgoods and services The international monetary system allows for this exchange, withcurrencies being converted at exchange rates that reflect their relative values Thisenables countries to engage in trade with each other and facilitates the movement ofgoods and services across borders

Secondly, the international monetary system provides a framework for settlingtransactions between countries When countries engage in trade, they often need tosettle their payments with each other The international monetary system provides avariety of mechanisms for settling these transactions, including the use of centralbanks, commercial banks, and other financial institutions This helps to ensure thattrade transactions are completed efficiently and reliably

Thirdly, the international monetary system facilitates the movement of capitalacross borders When investors want to invest in other countries, they often need toexchange their currencies and buy assets denominated in different currencies Theinternational monetary system provides a framework for this movement of capital,enabling investors to allocate their capital globally and promote economic growth anddevelopment

Overall, the international monetary system plays a critical role in facilitatingglobal trade of goods, services, and money It provides a means of exchanging

currencies, settling transactions, and moving capital across borders, enabling countries

to engage in trade with each other and promote economic growth and prosperityaround the world

1.1.4.3 Promotes economic cooperation and coordination among countries

The international monetary system plays a critical role in promoting economiccooperation and coordination among countries

One way in which the international monetary system promotes economiccooperation is through the establishment of international institutions and organizations,such as the International Monetary Fund (IMF), the World Bank, and the World TradeOrganization (WTO) These institutions work to establish common rules and standardsfor trade and finance, helping to promote transparency, reduce uncertainty, andencourage a level playing field for all countries

The IMF, for example, provides financial assistance and policy advice tocountries in need, helping to promote stability in the global economy The IMF alsomonitors exchange rate policies and provides guidance to countries on how to managetheir exchange rates in a way that promotes stability and growth

The World Bank provides loans, grants, and technical assistance to countries tosupport their development efforts, while the WTO helps to promote free and fair trade

by establishing rules and agreements that govern international trade

Moreover, the international monetary system also promotes economiccooperation and coordination through the use of common currencies, such as the euro

in Europe and the US dollar in many parts of the world Common currencies can help

to promote trade and investment by reducing transaction costs and eliminating theneed for currency exchange

Additionally, the international monetary system helps to promote economiccooperation by facilitating the movement of capital across borders This allowsinvestors to allocate their capital globally, promoting economic growth anddevelopment in different parts of the world

Overall, the international monetary system plays an important role in promotingeconomic cooperation and coordination among countries Through the establishment

of international institutions and organizations, common currencies, and the movement

of

capital across borders, the international monetary system helps to connect countriesand promote cooperation among nations This cooperation is essential for addressingglobal economic challenges, such as financial crises and trade imbalances, and forpromoting sustainable economic growth and prosperity around the world

1.1.4.4 Manages exchange rate volatility and promotes stability in the global currency markets

The international monetary system has several mechanisms for managingexchange rate volatility and promoting stability in the global currency markets:

 Central bank interventions: Central banks can intervene in the foreign exchangemarket to influence the value of their currencies For example, a central bankmay buy or sell its currency in the foreign exchange market to stabilize its value

or prevent excessive fluctuations However, central bank interventions aregenerally limited and are intended to prevent disorderly market conditionsrather than to manipulate exchange rates for competitive advantage

 Currency swaps: Currency swaps are agreements between two central banks toexchange their currencies for a set period of time This can help to provideliquidity in the foreign exchange market and stabilize exchange rates

 International reserves: Countries can build up international reserves of foreigncurrencies, such as the US dollar, to provide a cushion against currencyfluctuations International reserves can be used to stabilize exchange rates orprovide liquidity in the foreign exchange market

 Coordination among central banks: Central banks can coordinate their policies

to promote stability in the global currency markets For example, central banksmay agree to intervene in the foreign exchange market together or to coordinatetheir monetary policies to promote stability

 International organizations: International organizations such as the InternationalMonetary Fund (IMF) can provide financial assistance and policy advice tocountries experiencing currency volatility The IMF may provide loans or otherforms of financial assistance to help stabilize a country's currency and promotestability in the global currency markets

 Exchange rate regimes: The exchange rate regime adopted by a country canalso affect exchange rate volatility For example, a fixed exchange rate systemcan provide greater stability in exchange rates by pegging a country's currency

to the value of another currency or commodity A managed exchange ratesystem can also provide some stability by allowing the exchange rate tofluctuate within a certain range

1.2 Overview of financial institutions

1.2.1 Definition

A financial institution (FI) is a company engaged in the business of dealingwith financial and monetary transactions such as deposits, loans, investments, andcurrency exchange Financial institutions include a broad range of business operationswithin the financial services sector, including banks, insurance companies, brokeragefirms, and investment dealers

Financial institutions, as the name implies, are entities that deal in finances.They offer a wide range of monetary or financial services to individuals andbusinesses From helping individuals save money to enabling them to invest in stocks,such institutions serve different functions simultaneously

Financial institutions often match savers' or investors' funds with those seekingfunds, such as borrowers or businesses seeking to trade shares of ownership for funds.Typically, this leads to future payments from the borrower or business to the saver orinvestor The tools for matching all of these parties up include products such as loans,and markets, such as a stock exchange

At the most basic level, financial institutions allow people to access the moneythey need For example, although banks do many things, their primary role is to take in

funds—called deposits—from those with money, pool the deposits, and lend themoney to others who need funds Banks are intermediaries between depositors and

borrowers.The national and international financial institutions have a great role in ensuring

a healthy economy With the give and take of the monetary resources, the flow oftransactions remains balanced, which keeps the economy going Moreover, such

entities

in the nation make the market liquid, triggering more economic activities in therespective countries Therefore, any damage to these financial entities can have adirect negative impact on the economic health of the nation

1.2.2 Types of financial institutions

There are various types of financial institutions to fulfill different requirements

of customers They look into the customer’s financial needs, be it an individual or acompany, and offer relevant services These entities provide customers with valuablepieces of advice while choosing appropriate financial investment or savings options

1.2.2.1 Central Banks

Central banks are the financial institutions responsible for overseeing andmanaging all other banks In the United States, the central bank is the Federal ReserveBank (Fed), which is responsible for conducting monetary policy and supervising andregulating financial institutions

Individual consumers do not have direct contact with a central bank Instead,large financial institutions work directly with the Fed to provide products and services

to the general public

1.2.2.2 Retail and Commercial Banks

Traditionally, retail banks offered products to individual consumers, whilecommercial banks worked directly with businesses Today, most large banks offerdeposit accounts, loans, and limited financial advice to both consumers and businesses

Products offered at retail and commercial banks include checking and savingsaccounts, certificates of deposit (CDs), personal and mortgage loans, credit cards, andbusiness banking accounts

Internet banks offer the same products and services as conventional banks, butthey do so through online platforms instead of brick-and-mortar locations Internetbanks may allow consumers to carry out banking services via computer, mobiledevice, Automated Teller Machine (ATM), or by calling a customer service line.Using your

Credit unions are not publicly traded and only need to make enough money tocontinue daily operations, so they often can afford to provide reduced fees and betterinterest rates than banks.

1.2.2.4 Savings and Loan (S&L) Associations

Savings and loan associations provide individual consumers with checkingaccounts, personal loans, and home mortgages Financial institutions are owned bytheir customers or community A savings and loan is a type of thrift that is required bylaw to produce a certain number of loans secured by residential real estate, but the aim

of most savings and loans is to lend for residential mortgages

1.2.2.5 Investment Banks

Investment banks are financial institutions that provide services and act as anintermediary in complex transactions—for instance, when a startup is preparing for aninitial public offering (IPO), or when one company is merging with another They canalso act as a broker or financial advisor for large institutional clients such as pensionfunds

Investment banks help individuals, businesses, and governments raise capitalthrough the issuance of securities

1.2.2.6 Brokerage Firms

Brokerage firms assist individuals and institutions in buying and selling securitiesamong available investors Customers of brokerage firms can place trades of stocks,bonds, mutual funds, exchange-traded funds (ETFs), and some alternative investments

1.2.2.7 Insurance Companies

Financial institutions that help individuals transfer the risk of loss are known asinsurance companies Individuals and businesses use insurance companies to protectagainst financial loss due to death, disability, accidents, property damage, and othermisfortunes These companies can also include the self-insurance programs of otherfinancial institutions such as a savings and loan holding company

1.2.2.8 Mortgage Companies

Financial institutions that specialize in originating or funding mortgage loansare mortgage companies While most mortgage companies serve the individualconsumer market, some specialize in lending options for commercial real estate only

Mortgage companies focus exclusively on originating loans and seek fundingfrom financial institutions that provide the capital for the mortgages

Many mortgage companies today operate online or have limited branchlocations, which allows for lower mortgage costs and fees

1.2.3 Functions

Financial institutions perform a variety of functions that are important to thesmooth functioning of the economy Some of the key functions of financial institutionsinclude:

 Regulation of Monetary Supply: Financial institutions like the Central Bankhelp regulate the money supply in the economy to maintain stability and controlinflation For example, the Central Bank applies various measures likeincreasing or decreasing repo rate, cash reserve ratio, and open marketoperations, i.e., buying and selling government securities, to regulate liquidity

in the economy

 Banking Services: Financial institutions, like commercial banks, help theircustomers by providing savings and deposit services In addition, they offer credit

facilities like overdraft facilities to the customers to cater to the need for

 Capital Formation: Financial institutions help in capital formation, i.e., increase

in capital stock like the plant, machinery, tools and equipment, buildings,transport, communication, etc Moreover, they mobilize the idle savings fromindividuals in the economy to the investor through various monetary services

 Investment Advice: There are many investment options available at the disposal

of individuals and businesses But it is not easy to choose the best option in thecurrent swiftly changing environment Almost all financial institutions (banking

or non-banking) have an investment advisory desk that helps customers,investors, and businesses to select the best investment option available in themarket according to their risk appetite and other factors

 Brokerage Services: These institutions provide their investors access to severalinvestment options available in the market, ranging from stock bonds (commoninvestment alternative) to hedge funds and private equity investment (lesser-known alternative)

 Pension Fund Services: Through their various kinds of investment plans,financial institutions help individuals plan their retirement One suchinvestment option is a pension fund The individual contributes to theinvestment pool by employers, banks, or other organizations and gets the lumpsum or monthly income after retirement

 Trust Fund Services: Some financial organizations provide trust fund services

to their clients They manage the client’s assets, invest them in the best optionavailable in the market, and take care of its safekeeping

 Financing the Small and Medium Scale Enterprises: Financial institutions helpsmall and medium-scale enterprises set up themselves in their initial businessdays They provide long-term as well as short-term funds to these companies

1.2.4 Regulations

Governments oversee and regulate banks and financial institutions because theinstitutions play an integral economic role Bankruptcies of financial institutions, forinstance, can create panic Federal and state agencies can regulate financialinstitutions Sometimes, multiple agencies regulate the same institution

1.2.4.1 Federal Depository Regulators

Federal depository regulators oversee commercial banks, thrifts (savingsassociations), and credit unions accepting customer deposits

 U.S Federal Reserve (The Fed): Regulator of Federal Reserve System memberstate banks, foreign banking organizations operating in the United States, andfinancial holding companies

 Office of the Comptroller of the Currency (OCC): The OCC is responsible forseeing that national banks and federal savings associations operate safely,provide equal access to financial services, treat customers fairly, and complywith applicable laws and regulations It also regulates U.S federal branches offoreign banks and federally chartered thrift institutions

 Federal Deposit Insurance Corporation (FDIC): The FDIC regulates federallyinsured depository institutions, state banks that aren't members of the FederalReserve System, and state-chartered thrift institutions

 National Credit Union Administration (NCUA): NCUA supervises and insuresfederally chartered or insured credit unions

1.2.4.2 Federal Securities Markets Regulators

 Commodities Futures Trading Commission (CFTC): The CFTC regulatesfutures exchanges, futures commission merchants, commodity pool operators,commodity trading advisors, derivatives, clearing organizations, and designatedcontract markets.

1.2.4.3 Government-Sponsored Enterprise (GSE) Regulators

These dedicated regulators exclusively oversee government-sponsoredenterprises, which are quasi-governmental entities established to enhance the flow ofcredit to specific sectors of the U.S economy

 Federal Housing Finance Agency: The FHFA supervises, regulates, and performsoversight of the Federal National Mortgage Association (Fannie Mae), theFederal Home Loan Mortgage Corporation (Freddie Mac), and the FederalHome Loan Bank System

 Farm Credit Administration: This agency regulates Farm Credit Systeminstitutions and Farmer Mac, credit sources for eligible persons in agricultureand rural America

1.2.4.4 Consumer Protection Regulator

Currently, the Consumer Financial Protection Bureau (CFPB) is the onlynational consumer entity tasked with exclusively regulating consumer products.CFPB's purview includes nonbank mortgage-related firms, private student lenders,payday lenders, and other large “consumer financial entities,” as determined by theCFPB CFPB is the rulemaking consumer protection authority for all banks and hassupervisory authority for banks with more than $10 billion in assets

1.2.4.5 State Regulators

States may regulate financial institutions in addition to or instead of federalregulators For example, there is minimal federal oversight of the insurance industry.Each state government has a department that licenses and regulates insurancecompanies and any company selling insurance products States may also regulatebanking, securities, and consumer protections in addition to federal regulators whowork in those areas

CHAPTER 2: THE SITUATION IN VIETNAM AND AROUND

THE GLOBE

2.1 Monetary system and financials instituions in Vietnam

2.1.1 The monetary system in Vietnam

2.1.1.1 Overview

The monetary system in Vietnam plays a crucial role in managing the country'smoney supply, regulating the currency, and promoting economic stability Itencompasses various institutions, policies, and instruments that facilitate financialtransactions and influence the overall economy In this comprehensive overview, wewill delve into the components, functions, and key aspects of the monetary system inVietnam

2.1.1.2 Currency

The official currency of Vietnam is the Vietnamese dong (VND) It is issuedand regulated by the State Bank of Vietnam (SBV), which is the central bank of thecountry The dong is available in different denominations, including banknotes andcoins, to facilitate daily transactions The SBV is responsible for maintaining theintegrity, stability, and value of the currency

2.1.1.3 Central Bank

The State Bank of Vietnam (SBV) serves as the central bank and the keyauthority in the country's monetary system It is responsible for formulating andimplementing monetary policies aimed at maintaining price stability and ensuring theoverall stability of the financial system

The SBV regulates and supervises financial institutions, including commercialbanks, to ensure compliance with monetary policies and prudential regulations It alsomanages foreign exchange reserves, promotes the efficient functioning of paymentsystems, and provides banking services to the government and commercial banks

2.1.1.4 Monetary Policy

Monetary policy in Vietnam is formulated by the SBV to achieve variousmacroeconomic objectives, such as price stability, economic growth, and financialstability The primary tool used by the SBV to implement monetary policy is theadjustment of interest rates

By increasing or decreasing interest rates, the central bank influences the cost ofborrowing, which in turn affects the level of economic activity, inflation, and exchangerates The SBV also utilizes open market operations, reserve requirements, and othertools to manage liquidity in the banking system and control the money supply

2.1.1.5 Exchange Rate

The exchange rate regime in Vietnam has evolved over the years Currently,Vietnam operates a managed floating exchange rate system, where the value of theVietnamese đồng is determined based on market supply and demand with intervention

by the central bank to maintain stability

The SBV actively manages the exchange rate to ensure competitiveness ininternational trade, maintain export growth, and manage external imbalances Itintervenes in the foreign exchange market by buying or selling foreign currencies toinfluence the value of the đồng

2.1.1.6 Financial Stability and Financial Inclusion

Promoting financial stability is a critical objective of the monetary system inVietnam The SBV monitors and assesses risks in the financial system to prevent theoccurrence of systemic crises It sets prudential regulations, capital adequacyrequirements, and conducts regular inspections to ensure the soundness and stability offinancial institutions

The central bank also works to enhance risk management practices, fostertransparency and accountability, and strengthen the resilience of the financial system

to external shocks Maintaining financial stability is essential for sustainable economicgrowth and the protection of depositors and investors

The monetary system in Vietnam aims to promote financial inclusion andprovide access to financial services for all segments of the population The SBV

has

implemented initiatives to expand banking services, encourage electronic payments,and enhance financial literacy Efforts have been made to improve the availability ofbanking services in rural and remote areas, where access to traditional brick-and-mortar banks may be limited Additionally, mobile banking, digital payment platforms,and fintech innovations have gained traction, facilitating financial inclusion andreducing barriers to financial services

Vietnam also actively participates in international financial cooperation andengages with regional and global organizations to promote financial stability,strengthen financial infrastructure, and exchange knowledge and experiences Thecountry collaborates with institutions such as the International Monetary Fund (IMF),World Bank, Asian Development Bank (ADB), and Association of Southeast AsianNations (ASEAN)

2.1.2 Financial institutions in Vietnam

The financial sector in Vietnam has undergone significant transformations inrecent years, contributing to the country's economic growth and development.Vietnam's financial institutions play a crucial role in mobilizing savings, channelingfunds to productive sectors, managing risks, and providing essential financial services

to individuals and businesses In this comprehensive overview, we will delve into thevarious types of financial institutions in Vietnam, their functions, regulatoryframework, and the challenges they face

2.1.2.1 Commercial Banks

Commercial banks are the backbone of Vietnam's financial system They areresponsible for accepting deposits, providing loans, facilitating trade finance, andoffering a range of banking services Vietnam has a mix of state-owned banks andprivate banks, with some of the prominent state-owned banks including Vietcombank,Agribank, and BIDV, and notable private banks such as VietinBank, Techcombank,and ACB

Commercial banks play a vital role in intermediating funds between savers andborrowers, supporting economic activities, and promoting financial inclusion They provide individuals with access to basic banking services, such as savings accounts,

payment services, and personal loans Additionally, they offer businesses variousfinancial products, including working capital loans, project financing, and tradefinance facilities

2.1.2.2 Development Banks

Development banks have a specific focus on financing long-term projects andsectors critical to the country's development The Vietnam Development Bank (VDB)and the Bank for Investment and Development of Vietnam (BIDV) are 2 examplesamong the notable development banks in Vietnam These institutions provide financialsupport for infrastructure development, agricultural projects, and other priority sectorsidentified by the government

Development banks typically offer loans, credit lines, and investment capital forlarge-scale projects that contribute to the country's economic growth and socialwelfare They play a crucial role in bridging the financing gap for infrastructureprojects, which require substantial long-term investments but may face challenges inattracting private sector funding

2.1.2.3 Insurance Companies

The insurance industry in Vietnam has experienced rapid growth andtransformation in recent years Both state-owned and private insurance companiesoperate in the market, offering a wide range of insurance products to individuals andbusinesses State-owned insurance companies include Bảo Việt and Bảo Minh, whileprivate companies such as Prudential, AIA, and Manulife have a significant presence

Insurance companies provide protection against various risks, including lifeinsurance, property and casualty insurance, health insurance, and other specializedinsurance products These companies help individuals and businesses manage risk,protect assets, and provide financial security in case of unexpected events Theinsurance sector plays a critical role in supporting economic stability and promotinglong-term financial planning

2.1.2.4 Non-Bank Financial Institutions