THE IMPACT OF CENTRAL BANKS' DIGITAL CURRENCY DEVELOPMENT TRENDS ON THE VIETNAMESE FINANCIAL SYSTEM

ABSTRACT

According to the Bank for International Settlements, 93% of central banks are now doing research into central bank digital currencies. For Vietnam, the current circumstance helps to the implementation of a cash-restricted economic strategy, but it can also have negative consequences that jeopardize the safety and stability of the Vietnamese financial system. As a result, the article will concentrate on explaining the following points: First, a broad review of digital currencies and digital currency development patterns in central banks throughout the world; second, the influence of global digital currency development trends on the Vietnamese financial system, as well as some recommendations.

АННОТАЦИЯ

По данным Банка международных расчетов, 93% центральных банков в настоящее время проводят исследования цифровых валют центральных банков. Для Вьетнама текущие обстоятельства способствуют реализации экономической стратегии с ограничением наличных денег, но они также могут иметь негативные последствия, которые ставят под угрозу безопасность и стабильность вьетнамской финансовой системы. В результате статья будет сосредоточена на объяснении следующих моментов: во-первых, широкий обзор цифровых валют и моделей развития цифровых валют в центральных банках по всему миру; во-вторых, влияние глобальных тенденций развития цифровых валют на вьетнамскую финансовую систему, а также некоторые рекомендации.

Keyword: digital currency; central bank digital currency; development trends; central bank; Vietnam's financial system.

Ключевые слова: цифровая валюта; цифровая валюта центрального банка; тенденции развития; центральный банк; финансовая система Вьетнама.

1. Overview of global central banks' digital currencies

According to the Bank of England, central bank digital currency is electronic money that is globally accessible and issued by the central bank. At the same time, central bank digital currency (CBDC) is defined as digital currency issued by central banks in nations with national treasury units that symbolizes central bank debt. This distinguishes central bank digital currencies from electronic wallets, transfers, and payment cards, which reflect the debt obligations of intermediary financial organizations. Because of the unique characteristics of being issued by national central banks - the authority with the sole authority to issue money in each issue - digital currency issued by central banks is legal and trustworthy money, representing the country participating in economic exchanges and subject to strict management and control by state agencies in the issuing country. In addition, from the beginning of digitization, national digital currencies have often been constructed using Blockchain technology.

​The trend of establishing digital currencies of central banks in nations throughout the world may be split into the following specific categories:

The first group consists of up of pioneering countries. China, Sweden, the Bahamas, Uruguay, and 26 more nations are among those that have issued digital currencies. Among these, typical nations include: (1) In the Bahamas. The Sand Dollar Issuance Research initiative is a continuation of the Bahamas' Payments Systems Modernization Initiative (PSMI) initiative, which was initiated in the 2000s. Sand Dollar underwent two pilots in Exuma and Abaco before being rolled out across the Bahamas. Following strong trial findings indicating that over 70% of inhabitants wish to utilize mobile devices for payments or commercial transactions, the Bahamas' central bank formally released Sand Dollar on the national market on October 20, 2020, through approved businesses (AFIs). The Bahamian Sand Dollar is the world's first central bank-issued digital money. In 2020, the Bahamas revised the legislative structure, especially the Bahamas Central Bank Act, to provide a framework for the issue and usage of Sand Dollar. Next, in August 2021, the Central Bank of the Bahamas announced the Legal Regulations for the Sand Dollar. These are the legal papers that regulate the Sand Dollar, the official digital currency of the Bahamas; (2) In China, the Central Bank of China began exploring e-CNY in 2014, and it has already developed the infrastructure for an online electronic money payment system and e-CNY circulation. Since 2020, China has been testing the electronic Yuan in different places around the country in preparation for countrywide deployment. Changsu, Jiangsu province, plans to pay all public personnel in electronic Yuan by May 2023. China's e-CNY is governed by Chinese law, of which the fundamental legal framework is the People's Bank of China Law of 1995 (amended in 2003), and must also comply with a number of laws such as: Personal Information Protection Law 2021; Cyberspace Safety Law 2017; Data Security Law 2021; Law on Prevention of Money Laundering 2006; Anti-terrorism Law 2015; (3) In Sweden, the issued e-Krona will be subject to Swedish law: Swedish Constitution (SFS 1974:152), Sveriges Riksbank Law (2022:1568), Act on Countermeasures Money Laundering and Terrorist Financing (SFS 2017: 630), and the Money Laundering Sanctions Act (SFS 2014: 307), as well as European Union law: Directive about Payment Service 2; Directive 98/26/EC of the European Parliament and of the European Council on May 19, 1998.

Second, the group of countries that actively support and are researching issuance includes countries that have actively prepared the necessary conditions for testing, deployment, or are researching and learning about digital currencies central bank, with approximately 72 countries including India, Turkey, Switzerland, France, Saudi Arabia, Cambodia, Ecuador, Thailand,...Thailand, for example, has made significant progress with its wholesale central bank digital money project: Phase 1 began in August 2018 and investigates real-time gross settlement capabilities; phase 2 focuses on more complicated challenges in the bond lifecycle, fraud prevention, and regulatory compliance; and phase 3 examines cross-border payments in collaboration with other central banks. In Cambodia, the National Bank of Cambodia started studying digital currencies in June 2018. The "Bakong" project, which aims to construct an interbank payment system using distributed ledger technology (DLT), was tested in July 2019 and will be formally launched in October 2020.

Third, the group of cautious countries includes countries such as the United States, Germany, the United Kingdom, and Russia… that are concerned about the negative impacts and risks posed by central bank digital currencies on financial stability and bank structure, the entry of non-bank institutions into the financial system, and monetary policy transmission. For example, the United States was not initially interested in supporting central bank digital currencies due to the benefits of the USD in international payments, but has lately began to examine policies to promote this instrument, technology, and the possibilities it provides. The US Federal Reserve collaborated with MIT University on a digital money research study at its Boston branch in 2020.In Germany, despite central banks worldwide scrambling to explore and adapt to central bank digital currencies, the Bundesbank has collaborated with the Deutsche Börse group and financial regulators. Germany is conducting an attempt to create a technology bridge between blockchain and traditional payment systems without producing central bank digital money or any other cryptocurrency.

2. Impact of the trend of establishing digital currencies by central banks across the world on the Vietnamese financial system and some recommendations

• Positive impact

The biggest favorable influence of the global digital currency growth trend on Vietnam's financial system has been to generate a development path that supports to the implementation of Vietnam's cashless policy. The benefits that central bank digital currencies provide to the nations that have issued them include reducing cash in circulation and enabling payment transactions between organizations and people in society. This fact will serve as a major incentive for Vietnam to study, develop, and issue digital currency through the State Bank of Vietnam in the future, therefore establishing advantageous conditions for all enterprises and individuals in society while performing payment operations. Furthermore, the governmental Bank of Vietnam's issue of digital currency serves to reduce the usage of cash in the economy, allowing competent governmental institutions to better regulate the flow of money in the economy. This makes it easier to detect, prohibit, and prosecute tax evasion, money laundering, corruption, and other unlawful transactions. Limiting cash use in the economy also saves the Vietnamese government money on printing new money, recalling old money, and burning it. Simultaneously, crimes that violate money ownership, such as theft and robbery, will be minimized, lowering risks in transportation and payment operations for organizations and individuals in society and reducing the number of persons committing these crimes.

• Negative impact

The trend of central banks establishing digital currencies throughout the world may have an impact on the Vietnamese financial system's stability and development. Because of the unique nature of electronic currency with an Internet transaction environment, when several nations across the world create and put central bank digital money into circulation, it may result in a situation in which funds are pumped and withdrawn incredibly fast and readily. As a result, while Vietnamese companies and individuals continue to utilize cash in circulation, the State Bank of Vietnam has yet to issue digital money, making operations more complicated. Vietnam's monetary policy will always be slower than the rest of the globe. Especially when comparing the monetary policy flexibility of nations that have permitted central banks' digital currencies to float countrywide. Financial and monetary policies that do not "keep pace" with other nations in the globe might have an impact on the development and even stability of the national financial system.

• Some recommendations

Faced with the global trend of central banks investigating, producing, and issuing digital currencies, Vietnam has initiated the process of researching and testing digital currencies as well. In reality, in order to carry out the responsibilities set by the government, the State Bank of Vietnam conducted research and relied on international experiences. As a result, from the standpoint of legal policy, it is necessary to capitalize on both the good and negative effects of the global central bank's digital currency development trend on the financial system. Vietnam must establish and fulfill some of the following legal provisions: (1) Developing and documenting digital money issued by the Central Bank in general, and the State Bank of Vietnam in particular. In the near future, before the State Bank of Vietnam issues digital currency, Vietnam must first establish a legislative framework that clearly specifies the issuance model, issuer, and confirms the validity of the digital currency. Because there are various words used nowadays to refer to currencies used as a form of payment on the Internet, such as virtual currency, electronic currency, digital currency, and central bank-issued digital money. Therefore, in order to build a legal foundation for the State Bank of Vietnam's digital currency issuing operations, Vietnam must first precisely define this word. Simultaneously, the incorporation and recognition of digital money issued by the State Bank of Vietnam into legal documents serves as a legal basis for affirming the State Bank of Vietnam's exclusive function of issuing money. Restricting the usage of digital currencies not issued by national central banks may disrupt Vietnam's financial system; (2) Create a robust legal foundation to safeguard personal information and user privacy. Because of the unique nature of money in the Internet environment, in order to utilize digital money issued by the State Bank of Vietnam, users' personal information and transactions must be used; implementation will be recorded to the online data warehouse. Meanwhile, data warehouses on the Internet cannot be removed, and hackers can take information. As a result, establishing a robust legal foundation to safeguard personal data and privacy of organizations and individuals in society so that they may feel secure and safe when utilizing bank digital money issued by the central bank is an essential demand.

All in all, the State Bank of Vietnam will be able to capitalize on beneficial consequences while minimizing negative ones, as well as enable digital currency research, development, and issue. Vietnam has to construct and recognize the idea of the central bank's digital currency; provide a legal foundation for money issuance; and create a strong legal basis to safeguard users' personal data and privacy./.

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