Can CNY payments help control the underground economy in border areas?

  • by VNBUSINESS
  • September 11, 2018

The State Bank of Vietnam (SBV) has allowed CNY for payment for goods, hoping that the decision will help promote cross-border trade, create favorable conditions for trade, and control underground transactions.

Vietnam allowed residents in border areas and businesses to make payments in CNY and VND in 2004.  There were many restrictions set for the transactions. The payments in CNY could be made via bank accounts. If traders had receipts in CNY, they had to convert them into VND at the end of the day at licensed commercial banks in border areas.

The newly released Circular 19 stipulates that people joining trade activities in seven border provinces now can use CNY and VND in goods exchange across the border and at border markets. 

For a long time, underground payment activities were carried out in the provinces along the border. Businesses complained that banks only began their working day at 9 am when they announced the exchange rate, and closed at 3 pm. 

According to Nguyen Ngoc Minh, deputy director of SBV’s Forex Management Department, if Vietnamese businessmen export goods through auxiliary border gates, they can accept payment in VND and CNY cash, but they will have to hand it in to banks and show lawful documents.

He also pointed out that border residents and businessmen, when making transactions at border markets, can only use CNY and VND to make payment via banks, not other foreign currencies. If paying in cash, they can only use VND, not CNY.

“In other words, Vietnamese, border residents and Chinese travelers to seven border provinces in Vietnam can only pay cash in VND,” he explained.

A banker commented that the issuance of Circular 19 shows the central bank’s determination to accelerate payment and forex management.

For a long time, underground payment activities were carried out in the provinces along the border. Businesses complained that banks only began their working day at 9 am when they announced the exchange rate, and closed at 3 pm. 

Now, transactions can be made at any time from early morning to late night.

The new regulation will allow control of the cash flow and reduce the ‘underground economy’.

Asked if risks exist, the director of a commercial bank said banks need to consider documents thoroughly when approving payment procedures for Chinese businesses.

At present, Agribank, BIDV, Sacombank, Military Bank and LienViet Post Bank provide border payment services.

According to Pham Hoang Anh from the Banking Academy, an expert on CNY, the central bank’s decision to accept CNY in payment means tighter forex control in border areas. 

The transactions related to CNY will be carried out at commercial banks instead of the unofficial market.

Some experts warned that Vietnam needs to be cautious when using CNY as Vietnam still has a trade deficit with China.

Source: Vietnamnet

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