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Flows of Money
In a modern economy, adequate access to credit and foreign exchange is essential to efficient and secure trade. Burdensome foreign exchange requirements drive up the costs of doing business and discourage foreign investors. Poor access to credit for domestic-owned traders impedes start-ups and stifles expansion.
In Vietnam, cross-border transactions reflect a significant amount of monetary exchange. Overall exports and imports in Vietnam increased from $31.2 billion in 2001 to $84.7 billion in 2006. Implemented FDI inflows increased from $2.5 billion in 2001 to $4.1 billion in 2006. Remittances rose to an estimated $3.8 billion in 2004 from $2.6 billion in 2002 (up from $31 million in 1991), and revenue earned from Vietnamese working abroad is substantial.
Overall, Vietnam’s laws and public and private institutions support these trade-related money flows. Basic trade finance products are generally available to traders, and are now supported by a stronger legal framework. However, the actual use of basic financial instruments such as bills of exchange, promissory notes, and letters of credit is still much lower than would be expected given Vietnam’s rapid growth. Foreign currency exchange is available broadly and is fairly easily exchanged for all traders. In fact, Vietnam has made significant strides in this area in the past five years. Just a few years ago, foreign exchange was difficult and limited and there were few trade financial products.
This chapter analyzes legal, institutional, and operational issues regarding trade-related finance and recommends ways to minimize those constraints. First, the analysis focuses on legal framework for the trade-related institutions, the banks, currency exchange providers, and the central bank. Second, it considers the operational and institutional issues regarding trade-finance management and operations. Third, it reviews other institutions involved in trade-finance facilitation—including the export-credit agencies and money laundering agencies—and their role in trade facilitation. Lastly, it identifies major recommendations to improve facilitation of trade-related money flows.
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