Vietnamese Government Planning to Conduct CBDC Pilot

Vietnam has become the latest country to explore central bank digital currency (CBDC), although the government has said that a sovereign digital currency would not replace the country’s fiat. 

Vietnam’s Proposed Digital Currency not a Cash Replacement

According to Nikkei Asia on Monday (July 12, 2021), the decision by the Vietnamese government to explore the development of a CBDC comes from Decision 942 issued by the Prime Minister back in June. The strategy seeks to develop a digital government between 2021 – 2025.

Speaking on the e-Government development strategy, the coordinator of the Fintech-Crypto Hub at the RMIT University Vietnam, Binh Nguyen Thanh, said that it could enable the creation of a CBDC. Thanh also that the Vietnamese government could monitor ongoing digital currency efforts in different countries. 

Furthermore, Thanh revealed that Vietnam was working towards creating a fintech regulatory sandbox, which could include a digital currency pilot. Meanwhile, a CBDC does not serve as a replacement for the Vietnamese dong.

As previously reported by BTCManager, the Vietnamese government instructed the State Bank of Vietnam (SBV) to trial a blockchain-based digital currency. The implementation of the pilot program would run from 2021 to 2023. 

While Vietnam seems to have joined the long list of countries testing CBDCs, the country was not always open to cryptocurrency. Back in 2018, the country’s Prime Minister at the time, Nguyễn Xuân Phúc, who is Vietnam’s current President, directed financial institutions to cease services to crypto-based clients. 

In the same year, the country’s finance ministry called for a ban on the importation of crypto mining equipment. The government also prohibited companies from handling crypto. Later in 2020, a Vietnamese ex-police chief warned against investing in cryptocurrency schemes.

However, Vietnam’s Ministry of Finance in May of the same year, revealed that it was considering establishing a research group that would study and proposes regulatory policies for the crypto industry. 

The interest in CBDCs continues to grow, with more central banks experimenting or trialing sovereign digital currencies. As BTCManager reported earlier in July, the Bank of Jamaica revealed that it would conduct a pilot program for CBDCs in August.  

New Zealand is also exploring a digital currency, while Japan’s digital yen plans would take shape later in 2022. 

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Vietnam Changes Tune on Crypto with Pilot Plans

Key Takeaways

  • Vietnam’s central bank will begin piloting the use of crypto technology on Prime Minister Phạm Minh Chính’s request, Vietnam News has reported.
  • The development is something of a U-turn for Vietnam, which has historically displayed aversions towards cryptocurrencies.
  • Countries around the world have shown conflicting views on the asset class to date.

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Vietnam’s Prime Minister Phạm Minh Chính has asked the State Bank of Vietnam to study and conduct a pilot implementation of cryptocurrency-based technology over the next two years, Vietnam News has reported. 

Vietnam More Open to Crypto

The Vietnamese government seems to have changed its view on cryptocurrencies. 

Vietnam News has published a report indicating that the country’s Prime Minister Phạm Minh Chính has asked the Central Bank to begin piloting the use of crypto technology by 2023. 

Until recently, institutions in Vietnam have taken a hard stance against cryptocurrencies. The Vietnamese regulator, the State Securities Commission, banned firms from engaging in cryptocurrency-related activities in 2018. Additionally, the State Bank of Vietnam does not legally recognize cryptocurrencies such as Bitcoin and has advised credit institutions not to use them as a type of currency or a means of payment.

The Vietnamese government’s change in stance is a crucial first step towards broader cryptocurrency adoption in the country. The interest in blockchain technology is part of Prime Minister Phạm Minh Chính’s e-government development strategy. The Vietnamese government also hopes to develop artificial intelligence, big data, augmented reality, and virtual reality technologies, creating favorable conditions for building a digital government. 

The deputy director of the Institute of Innovation at the University of Economics HCM City, Huỳnh Phước Nghĩa, supported the government’s decision, telling Vietnam News that “digital money is an inevitable trend.” Nghĩa also pointed out that cashless payments in Vietnam were increasing and that recognizing digital currencies would help accelerate this process.

The study and pilot implementation will help the Vietnamese government identify the positives and negatives of cryptocurrencies. In doing so, the government should be able to make informed regulatory decisions regarding crypto assets. 

The shift in attitude from the Vietnamese government comes as an increasing number of countries take sides concerning cryptocurrencies. China has launched a nationwide crackdown on the space, shutting down the country’s Bitcoin mining hubs and vowing to curtail crypto trading. India’s central bank recently reaffirmed its anti-crypto stance, citing “major concerns” surrounding digital assets. At the same time, Latin American countries are embracing cryptocurrencies, with El Salvador becoming the first country to adopt Bitcoin as legal tender. While Vietnam’s not at that stage, the development bodes well for the country’s adoption of the asset class. 

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

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.