BOL places curbs on currency exchange in bid to stabilise kip

The Bank of the Lao PDR will limit the functions of currency exchange units across the country, as part of efforts to regulate foreign currencies and stabilise the value of the kip.
Under the new policy, money changers will be banned from trading in foreign currencies with organisations and companies.
“Currency exchange units will only be allowed to change money for individuals and tourists, up to a maximum 15 million kip per person per day,” the Governor of the Bank of the Lao PDR, Mr Sonexay Sitphaxay, told the National Assembly on Wednesday.

Mr Sonexay Sitphaxay.

“This means that companies and other legal entities must sell and buy foreign currencies at commercial banks.”
The move supports the government’s attempts to give commercial banks a greater role in the purchase and sale of foreign currencies for importers, exporters, investors and other legal entities, while limiting the role of money exchange units in currency trading.
The sale and purchase of foreign currencies, mainly the Thai baht and US dollar, currently mainly takes place through money exchange units because of trading restrictions imposed by commercial banks and the growing disparity between official exchange rates and the parallel market rate.
If commercial banks are given more authority and flexibility, it is envisaged that more foreign currency will flow into the banking system. It is also expected that commercial banks will operate more exchange units across Laos.
After delivering this message, the BOL Governor was bombarded with questions from National Assembly members, who asked him to clarify the reasons for the depreciation in the value of the kip and provide possible solutions to the problem.
In response, Mr Sonexay said the central bank was working with the Ministry of Public Security to investigate target groups and address all forms of unlawful currency trading.
As many currency exchange units are now linked to commercial banks, the banks are required to monitor their operations.
Although the number of currency exchange units has fallen from 550 to just over 400, the central bank has pledged to double its efforts to regulate them and stabilise currency exchange rates.
The BOL Governor said it was essential to revise the regulations around the management of foreign currencies and promote wider use of the kip in trade. These days it is increasingly common for people to make purchase in foreign currencies, especially land.
The Governor promised that members of the public could continue to withdraw money from foreign currency accounts at banks.
He said he did not know the exact amount of foreign currency circulating in the country because many transactions take place outside the banking system.
The depreciation of the kip is fundamentally linked to a supply-demand mismatch, Mr Sonexay said, explaining that the supply of foreign currency had not decreased but that demand had increased significantly because of the surge in fuel prices and volume of imported goods.
To stabilise the kip, the central bank has issued bills worth 5 trillion kip, which are on sale starting on June 15 at commercial banks.

By Somsack Pongkhao
 (Latest Update June 17, 2022)