BOL regulates currency exchange rates in bid to stabilise economy

The Bank of the Lao PDR (BOL) has issued a new Decision on the setting of currency exchange rates, as a guideline for commercial banks trading in foreign currencies.
The move is aimed at enabling commercial banks to operate with a degree of flexibility in the purchase and sale of foreign currencies, thus helping to stabilise the value of the kip. Under the two-page Decision signed by the Governor of the central bank, Dr Bounleua Sinxayvoravong, commercial banks are permitted to set their rates of exchange each day based on the reference rate determined by the BOL.
The rules governing the way commercial banks set their daily exchange rates remain unchanged.
Commercial banks’ kip/US$ purchase and sale rates must not vary by more than +/-4.5 percent from the central bank’s reference rate.
There is no restriction on the extent to which the exchange rate of the kip vis a vis the euro, baht, yuan and other currencies can differ from the BOL reference rate.
In all currency exchange rates, the gap between the buy and sell rates should not exceed 1 percent.
Under the BOL Decision, the Monetary Policy Department sets the daily reference rate for kip/US$, while the Banking Operations Department sets the daily BOL exchange rates for the kip vis a vis the US$ and other currencies, which are posted on the bank’s website.
The daily reference rate set by the central bank will set firm guidelines for commercial banks in determining their foreign exchange rates.
Banks must report the value of their foreign exchange transactions to the Bank of the Lao PDR on a daily basis, with separate reports for each currency.
The new Decision was issued as part of efforts by the central bank to regulate foreign currency exchange rates and stabilise the value of the kip. The government is well aware that fluctuating exchange rates are the main driver of inflation and the rising cost of living in Laos.
Over the past year, the central bank has made a number of changes to its monetary policy and tightened the rules in an attempt to rein in spiralling inflation and the plummeting value of the kip, all aimed at supporting the government’s efforts to tackle its economic woes.Last month, the Bank of the Lao PDR ordered 113 money exchange units affiliated with commercial banks to suspend their operations, after revoking their business licences. This year, the government has pledged to further tighten exchange rates based on market-oriented mechanisms but under the management of the state, according to a report by the Lao Economic Daily. 
The government will enforce the foreign currency management law by allowing only commercial banks to buy and sell foreign currencies, calling a halt to transactions at smaller, more informal exchange units.
The government will also place tighter controls on foreign currency earned from exports and the inflow of foreign currency from foreign investment, to ensure that more foreign currencies are in general circulation.

By Somsack Pongkhao
 (Latest Update February 21, 2023)