Vietnam Tasks Agencies to Prepare Legal Framework for Cryptocurrencies, Virtual Assets
- While cryptocurrency trading and use are growing in terms of popularity globally, the Vietnamese legislation makes no reference to such transactions.
- Recently, the Deputy PM tasked the Ministry of Finance to develop a legal framework on virtual currencies and virtual assets.
- The development comes after Vietnam’s Ministry of Finance established a research group that has begun an in-depth study of cryptocurrencies, with a view to achieving legislative reform for the industry in the country.
- While regulation of cryptocurrencies is welcome, no date has been given for the submission of the bill to the government.
Vietnam’s Deputy PM has asked the country’s Ministry of Finance (MoF) to develop a legal framework on cryptocurrency and virtual assets. The development is part of Vietnam’s Prime Minister Pham Minh Chinh ask of the country’s central bank the State Bank of Vietnam (SBV) to begin working on a pilot project on cryptocurrency in May 2020. The blockchain-based project is expected to be implemented sometime between 2021 and 2023. Reports state that this is part of the government’s plan to develop a strategy towards a digital economy.
The MoF is expected to release a specific time fame for the implementation of the legal framework though no date has yet been released.
The development comes after the MoF on March 30, 2021 established a research group, which began an in-depth study of cryptocurrencies, with a view to achieve legislative reform for the industry in the near term.
While cryptocurrency trading and use are gaining popularity globally, the Vietnamese legislation makes no reference to such transactions.
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Yet, the current transition of Vietnam’s economy offers a particularly favorable context for cryptocurrencies. Payment methods are increasingly cashless, as Vietnamese steadily embrace apps, QR codes, and e-wallets (such as Moca, Momo, or ZaloPay). In the government’s development strategy, by the end of 2025, the government has set a target of reaching an annual growth rate of 20-25 percent for non-cash payment transactions. Further, despite a lack of regulatory framework, Vietnam’s adoption of digital assets is among the highest in the world as per Statista.
What’s more, an estimated one million Vietnamese are already using cryptocurrencies: this figure is expected to increase 30-fold by 2030 making the market profitable in the near term.
However, cryptocurrency crime is rife with currency thefts, regular hacks, and cyber scams. In 2018, the Vietnamese startup Modern Tech had gone off radars after scamming some 30,000 people investing in nebulous cryptocurrency projects and initial coin offerings (ICO). Investors lost some US$660 million.
Therefore, implementing a legal device to manage and handle virtual assets is the current challenge for Vietnam’s government. It would also set boundaries to abusive cryptocurrency transactions, which is the main concern.
Legal gap reflects mistrust and confusion
Like many global governments, Vietnam was unsure how to respond to the surge of cryptocurrencies on its territory.
Suspicion towards cryptocurrencies is easily explained. Their immaterial nature challenges state authority, such as state-owned banks that have no control over the cryptosystem. Governments are also significantly concerned about the risks of speculation and manipulation that may have tremendous impacts on national economies.
In addition, the swift variability of virtual currencies and the general lack of knowledge triggers reactive legislative processes.
At present, Vietnamese law does not mention cryptocurrencies as a legal means of payment, and neither does it recognize them as an asset or a foreign currency.
Bitcoin and other similar cryptocurrencies have been specifically designated by SBV as illegal and are banned for trade relationships. Therefore, using, supplying, and issuing cryptocurrencies in Vietnam is liable to fines — up to US$8,700 — and imprisonment. However, possessing, trading, and investing in cryptocurrencies is not forbidden nor permitted; it is only tolerated for the time being.
However, the announcement of a pilot project especially tasked to the SBV as well as the ask for a legal framework underlines that Vietnam cannot ignore cryptocurrencies as it gains popularity and reports a high number of users from Vietnam.
In any case, such a legal gap is risky; to minimize the drawbacks arising from cryptocurrencies, the government has tasked the research group, which will focus on an array of topics including:
- To understand the cryptocurrency industry;
- To recognize the existence of cryptocurrencies by amending the current law;
- To build transparent, predictable, and efficient regulations;
- To build responsive legislation concerning the high variability of the market: even though Bitcoin is at the heart of concerns due to its popularity among insiders and the common people, the market is much larger, and more currencies are to appear over the next few years;
- To recommend structural adjustments by creating mechanisms to monitor the cryptocurrency market through skilled supervisory bodies — attentive to market conditions, to the emergence of new currencies, and ready to respond quickly and effectively to the risks; and
- To recommend tools to these supervisory bodies, namely powers to issue, suspend or revoke licenses, to regulate business practices, and to report suspicious activities.
To this end, the group is to conduct a search on laws already enacted by the US, the EU, and Japan.
Regulating cryptocurrencies: long term benefits for Vietnam’s economy
The long-term public, social, and economic benefits of any future regulations are many.
Firstly, it will provide an opportunity for Vietnam to make additional revenue through taxation from the trade of cryptocurrencies. By defining them as exchanges of foreign currencies or financial assets, such exchanges, previously tax-free, may fall within the scope of corporate or personal income tax.
In addition, regulating cryptocurrencies in Vietnam should effectively fight fraud and abuses related to virtual currencies, such as money laundering, hacking, or the anonymous financing of other illegal activities.
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For instance, Japan opted in 2017 for forced identification of cryptocurrency users; Japanese stock exchanges are required to check and record the identity of clients, as well as keep complete transaction records. This remedy for fraud could possibly be studied by the research group.
What’s more, these provisions could address governmental demands for public financial order by ensuring the safety and security of the cryptocurrency market, as well as protecting the national economy from related risks.
In the same way, it will ensure a protective legislative environment for lay consumers of cryptocurrencies. The government’s attitude towards cryptocurrencies would then shift from passive recommendations and warnings to a proactive protection tool.
In the end, any regulations must provide a flexible and favorable environment for cryptocurrency investors and startups. The protective framework, rather than curbing cryptocurrency trade, should establish an incentive environment for more and safer exchanges — although some investors may cease their activities in the country as the government increases its scrutiny. The emphasis should be then on the transparency and the predictability of the legal system.