Expert suggests four ways to help transform Ho Chi Minh City into a financial hub
With key financial reforms, Ho Chi Minh City could follow Tokyo, Shanghai, Mumbai, according to Donald Lambert, Principal Private Sector Development Specialist at the Asian Development Bank (ADB)'s Southeast Asia Department.
"In the 2000s, Dubai emerged as a global financial centre. The impact has been considerable. At the turn of the millennium, the United Arab Emirates had a GDP of USD104 billion. By 2018, its economy had not only quadrupled in size but had become less dependent on oil with financial services a major driver of the growth," he explained.
Lambert advised that the better approach for most countries, including Vietnam, is to first focus on becoming a national financial centre.
"Vietnam has huge investment needs," he noted. "For infrastructure alone, the annual investment demand is estimated at USD18 billion to USD20 billion. If Ho Chi Minh City can become an increasingly effective intermediator - raising capital efficiently not only from domestic but international sources — it will not only drive the development of Vietnam’s real economy but also develop the skills and experience necessary to move from a national financial centre into an international one."
The expert stressed that a national and later global financial centre would require investments in physical infrastructure as well as education and training, but policy reforms were necessary.
He pointed out four common characteristics that global financial centres across the world share including comprehensive legal frameworks, solid market infrastructure, monetary policy independence, and robust regimes for anti-money laundering and combating the financing of terrorism.
For the first characteristic, Lambert said that international investors need clear laws that are predictably enforced. Vietnam currently has several important laws that need to be strengthened or introduced including the Law on Securities, the Law on Credit Institutions, and a law on public-private partnerships to attract more investment into domestic securities, banking, and infrastructure.
In term of market infrastructure, he noted that investors are drawn to markets where they can complete trades efficiently and cost-effectively. Vietnam is lagging in several key areas. Real time gross settlement and delivery-versus-payment are under developed. The netting regime does not meet international standards and forces foreign banks to hold extra capital against exposures in Vietnam. Also, Vietnam does not have a market-determined, short-term benchmark interest rate, which is a cornerstone for so many other components of a modern capital market.
For monetary policy, he stressed that investors wanted predictability. The implication is that monetary policy decisions must be made with a certain degree of independence. This includes foreign exchange rate flexibility, interbank interest rate stability, and inflation targeting.
And for the last characteristic, he said that Vietnam has committed itself to implementing the Financial Action Task Force’s recommendations on money laundering and combating the financing of terrorism. These are critical to ensure that foreign banks and investors can transact safely in the domestic market.
Lambert noted that Vietnam’s growth trajectory only amplifies Ho Chi Minh City’s opportunity.
By 2050, Vietnam is projected to be among the 20 largest economies in the world. If Ho Chi Minh City in co-ordination with the central government can implement these key financial reforms, it has the potential to follow the model of Tokyo, Shanghai, Mumbai, and others which came to global financial prominence by first funding the development of their own domestic economies, he concluded.
Photo caption: Ho Chi Minh City is in the process of reforming key aspects of its financial system.
A corner of HCM City. Photo by Vneconomy
"In the 2000s, Dubai emerged as a global financial centre. The impact has been considerable. At the turn of the millennium, the United Arab Emirates had a GDP of USD104 billion. By 2018, its economy had not only quadrupled in size but had become less dependent on oil with financial services a major driver of the growth," he explained.
Lambert advised that the better approach for most countries, including Vietnam, is to first focus on becoming a national financial centre.
"Vietnam has huge investment needs," he noted. "For infrastructure alone, the annual investment demand is estimated at USD18 billion to USD20 billion. If Ho Chi Minh City can become an increasingly effective intermediator - raising capital efficiently not only from domestic but international sources — it will not only drive the development of Vietnam’s real economy but also develop the skills and experience necessary to move from a national financial centre into an international one."
The expert stressed that a national and later global financial centre would require investments in physical infrastructure as well as education and training, but policy reforms were necessary.
He pointed out four common characteristics that global financial centres across the world share including comprehensive legal frameworks, solid market infrastructure, monetary policy independence, and robust regimes for anti-money laundering and combating the financing of terrorism.
For the first characteristic, Lambert said that international investors need clear laws that are predictably enforced. Vietnam currently has several important laws that need to be strengthened or introduced including the Law on Securities, the Law on Credit Institutions, and a law on public-private partnerships to attract more investment into domestic securities, banking, and infrastructure.
In term of market infrastructure, he noted that investors are drawn to markets where they can complete trades efficiently and cost-effectively. Vietnam is lagging in several key areas. Real time gross settlement and delivery-versus-payment are under developed. The netting regime does not meet international standards and forces foreign banks to hold extra capital against exposures in Vietnam. Also, Vietnam does not have a market-determined, short-term benchmark interest rate, which is a cornerstone for so many other components of a modern capital market.
For monetary policy, he stressed that investors wanted predictability. The implication is that monetary policy decisions must be made with a certain degree of independence. This includes foreign exchange rate flexibility, interbank interest rate stability, and inflation targeting.
And for the last characteristic, he said that Vietnam has committed itself to implementing the Financial Action Task Force’s recommendations on money laundering and combating the financing of terrorism. These are critical to ensure that foreign banks and investors can transact safely in the domestic market.
Lambert noted that Vietnam’s growth trajectory only amplifies Ho Chi Minh City’s opportunity.
By 2050, Vietnam is projected to be among the 20 largest economies in the world. If Ho Chi Minh City in co-ordination with the central government can implement these key financial reforms, it has the potential to follow the model of Tokyo, Shanghai, Mumbai, and others which came to global financial prominence by first funding the development of their own domestic economies, he concluded.
Photo caption: Ho Chi Minh City is in the process of reforming key aspects of its financial system.
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