SACRAMENTO, California — Are cryptocurrencies a phase, or are they a sustainable alternative to centralized currency? The Vietnamese government is hoping to find answers to these questions. In July 2021, Prime Minister Chinh had directed the State Bank of Vietnam to create a pilot program to study the implementation and benefits of crypto-currency as a part of Vietnam’s E-Government Development Strategy towards a Digital Government despite banning the digital currency in 2018. The adoption of crypto-currency in Vietnam could have a profound impact on its development and poverty.
Crypto-Currency in Vietnam
Over the last four decades, Vietnam has experienced remarkable growth and development, dropping the poverty rate to 6% from 70% while nearly tripling the GDP per capita. Yet, Vietnam has been exploring other areas to invest in to further this development. One area the Vietnamese government has investigated is 21st-Century technology. For example, in March 2021, the government announced the National Strategy on R&D and Application of Artificial Intelligence. In this plan, the government would support the nascent industry through investing in AI centers.
Despite the support for forward-looking technology, the government has primarily rejected crypto-currency in Vietnam. In 2018, the Vietnamese government called for harsh measures preventing the use of and investment in the decentralized digital currency that runs on blockchain technology. The government went so far as to claim that the development of crypto-currency threatens “to affect the stability of the financial system, social order and safety.” Unsurprisingly, the Vietnamese government banned the use, acquisition and sale of cryptocurrency in late 2017. The ban had a robust enforcing mechanism with a hefty $6,000 to $9,000 fine for any party caught accepting or making payments in cryptocurrency.
Embracing Virtual Currency
The government began to shift its aversion to curiosity in June 2021 with Decision 942 from Prime Minister Pham Minh Chinh. The decision approved “the strategy for [the]development of e-government toward a digital government for 2021-2025 with an orientation toward 2030.” The plan doesn’t explicitly speak of cryptocurrency, but it does ask the State Bank of Vietnam to pilot the use of “virtual currency” based on blockchain technology.
The decision comes months after the Ministry of Finance set up a study group to explore cryptocurrency’s potential regulations and management mechanisms. The research group will specifically study how to:
- “Understand the crypto industry”
- Amend current laws to acknowledge the reality of the crypto industry
- Develop efficient regulations that monitor the market and its users with punitive mechanisms
- Create laws that deal with the high variability of the market
- Pull from Japan’s, the United States and European Union’s regulatory system
A significant part of this decision was that the State Bank of Vietnam will also implement a pilot program for cryptocurrency using blockchain technology sometime between 2021 and 2023. Like the Ministry of Finance study group, the program will find “positive and negative aspects… while developing a more appropriate management mechanism.” Many experts see this development as the first step of the acceptance of crypto-currency in Vietnam.
Crypto-Currency’s Role in Reducing Poverty
In some sense, this shift reflects the reality of the “one million Vietnamese already utilizing crypto-currencies.” Some analysts expect this number “to increase 30-fold by 2030.” Given this reality, there is little semblance of a legal structure (aside from the outright ban previously mentioned) to regulate users, resulting in a legal gap. By filling in this legal gap, it can have immediate benefits for the government. If treated as a financial asset, it can prove to be a source of significant public funds. Likewise, by creating a regulatory infrastructure, the government can better fight against criminal activity associated with the currency.
Nevertheless, the impoverished will feel the most significant impact from a shift. Only 31% of the population has access to traditional forms of banking, leaving 60 million people with no formal banking options. When investigating why this number is so high, the World bank found the following:
- 6.2 million adults said financial services were too far
- 2.2 million adults said financial services were too expensive
- 2.3 million adults said documentation requirements were prohibitive to open an account
- 1.1million adults said they lack trust in the financial sector
Given its cost-effective and decentralized nature, crypto-currency is a uniquely apt solution to these concerns. In contrast to banks, which act as third parties to oversee the transaction, bitcoin cuts out the middle-man. Primarily because of the absence of a third party, it removes transfer costs, a cumbersome enrollment process and the necessity of traveling to a physical location. In essence, it cuts the cost and barriers to accessing financial tools; therefore, it alleviates the issues and concerns mentioned above.
With a smartphone or computer and internet connection, Vietnamese citizens can bypass the majority of the impediments holding back many from accessing financial tools. Supporting crypto-currency in Vietnam is critical for the millions unbanked in the country.
Granted, issues remain with cryptocurrency. Its anonymous nature makes it prime for criminals while its speculative essence puts users at risk. Additionally, not everyone in Vietnam has access to the internet. Nonetheless, the potential of crypto-currency in Vietnam as a force for development and poverty reduction is too significant to ignore. Crypto-currency sidesteps financial institutions and provides people with financial tools, such as transferring, storing and investing with digital tools, without traveling to a physical bank to set up an account and all of the other impediments that may bring.
– Vincenzo Caporale
Photo: Wikipedia