# Vietnam central bank needs clearer mandate not independence

The Vietnamese government should worry less about meeting calls for more legal independence for the State Bank of Vietnam and think more about relieving the central bank from some of its wide-reaching responsibilities, says new Central Banking Journal article.

The State Bank of Vietnam needs to be given the right operating conditions to allow it to focus far more of its attention on price stability to ensure the Vietnamese economy runs smoothly in the medium term, according to a new article published in the Central Banking journal.

The authors of the report, State Bank of Vietnam needs a single mandate not independence, believe the central bank does not necessarily need more de jure independence, as advocated by the IMF, to better reach its policy objectives. Instead, the government should consider revising the central bank's mandate so it can focus more on price stability and less on other matters, such as facilitating credit for state-owned institutions.

"The State Bank of Vietnam has many responsibilities as defined by the State Bank Law," said authors Thomas Cargill, professor of economics at the University of Nevada, and Tuan Nguyen, an associate director at Standard Chartered. "Fewer responsibilities and more focus on price stability needs to be considered."

The authors believe the institutional design of a central bank in terms of whether it is de jure independent or dependent on the sovereign government is less important than if the central bank operates with a clear rule to focus on price stability. "Rather than make the SBV de jure independent as recommended by the IMF, it would be better to have the SBV operate with an inflation target," the authors said.

The paper also stated there is a "meaningful nonperforming loan problem" in the financial system that "cannot be solved by monetary policy", but instead "requires structural changes". "Relying on central banks to support non-performing loans postpones meaningful reform and makes it less likely price stability will be achieved," the authors said.

However, the article – which points to lessons Vietnam could learn from both South Korea and Japan – stated the issues facing Vietnam are far from unique and not limited to the developing world. They highlighted the US, where the Federal Reserve has a dual mandate to achieve both price stability and maximum employment, as a case in point.