Once again, the question: “Which model should be used for the central bank to ensure its ability to control the monetary situation and minimise the impact of the crisis?” has been raised.

The question was raised for the first time 10 years ago, when the Law on the State Bank was being compiled. Economists talked much about the characteristics the central bank must have to ensure its special position in the national economy.

However, as 1997’s financial crisis spread all over Asia, talk of the independence, transparency or organisation model of the central bank was postponed. Economists began talking about the factors that can help the central bank control monetary situations, and minimise the negative consequences of the crisis.

What are the main tasks of the central bank?

What are the main tasks of the central bank? Should the central bank be independent from the Government? The questions was one again discussed at a workshop on State Bank of Vietnam (SBV) reform, held by the International Monetary Fund (IMF) and the SBV late last week attended by many international and local financial experts.

Le Xuan Nghia, Head of the Department for Banking Development Strategy under the SBV said that the central bank had too many different roles, which led to conflict in task implementation.

For example, the SBV has two functions, namely to foster economic growth and to control inflation. Economists believe that these two roles are contradictory and the SBV should choose only one of them to pursue.

Lars Nyberg, Deputy Governor of Swedish Riskbank asserted that the main tasks of central banks are to stabilise prices, and ensure stability in the financial system, thus stabilising the national economy. Mr Nyberg did not talk about the task of fostering economic growth, as he believes that monetary policies cannot have a direct impact on long-term growth.

According to Vu The Vac, Director of the Legal Department under the SBV, the main tasks of the state bank are to stabilise the value of the currency, and ensure the normal operation of the banking system. In addition, the state bank must also aim at macroeconomic purposes like economic growth.

However, the state bank has to focus on its main tasks in case of a conflict in its roles.

If this is the case, the SBV should have focused on inflation control over the last two years rather than on economic growth. Meanwhile, it has been pursuing both purposes despite their being considered contradictory.

Independence the key issue

In Vietnam, the SBV is a branch of the Government and operates as one of the state management bodies in the government.

Some experts believe that such a model is not suitable for the SBV, and may diminish the role of the central bank. The experts believe that it is necessary to split the central bank from the government apparatus.

The participants at the workshop came to the conclusion that SBV needs to be more independent.

Mr Nghia, who on one hand shared the same view, on the other hand recalled that being independent does not mean separating from the government.

Duong Thu Huong, Deputy Chairwoman of the National Assembly’s Economy and Budget Committee also supports strengthening the SBV’s independence.

“It is not necessary for the SBV to split from the Government, but is must have the autonomy to fulfil its given tasks,” said Ms Huong. The Government sets the targets, and the SBV fulfils the tasks with its tools, while the Government or the National Assembly need not interfere in the bank’s job by setting detailed requirements, such as the money supply, or interest rates.