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EXECUTIVE SUMMARY
1. THE NEEDS OF PROJECT
Liquidity is available capital to meet the financial obligations of credit
institutions (CIs) or banks. Capital is to meet the requirements of central bank
reserves and compulsory excess to perform its payment obligations to customers,
with the state budget, dealing with partners, pay debt to the central bank. The banks
will maintain liquidity in two forms: in the funds deposited at the central bank and
credit institutions. The excess liquidity is the highest portion of liquid, banks will
determine the proportion of money kept in bank or deposited at the central bank
based on payment demand. Thus, the liquidity kept in the central bank include the
required reserve deposits and a part of excess reserves to meet the needs of payment.
The central bank manages the deposited liquidity by setting the regulation and policy
system, building the rules of intervention, dominating the transaction volume of
liquidity in currency markets to adjust liquidity status in the interbank market,
dominating the behavior of balance adjustment between deposited liquidity and fund
in bank to ensure its proper operation, thereby affecting market interest rates in order
to achieve the ultimate goal of the monetary policy.
To execute the liquidity management, central bank needs to forecast liquidity
status in the market, determine the value needed to intervene and propose the
solutions to adjust liquidity status in the market to achieve the goal of monetary
policy execution. Depending on the nation, with the characteristics of political
institutions, the stage of economic development as well as the effectiveness in
monetary policy operation of central bank; the impact of each element that causes the
supply and demand of liquidity at the central bank as well as the prediction and
control of single component in central bank liquidity also differ.
The State Bank of Vietnam is gradually improving the management of liquidity
such as complete forecasting methods, provide sources of information for the forecast
reports, improve uniformity of intervention system,...Despite many efforts, the results
gradually are more accurate prediction, the tools are used flexibly, creating volatility
in line with market requirements and achieve the State Bank goals, but the result of
liquidity management of the central bank faces many constraints, liquidity status of
the market reflects positive changes after the central bank intervened, directed
interest rate does not drive market interest rates, the operating activities of SBV go
after market, the market is not interested in the operating from the central bank.
Causes affecting the results on liquidity management of State Bank of Vietnam is the
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lack of reporting system, forecasting techniques are short-term, predictable and
management on liquidity are limited, the coordination of macroeconomic policies is
inconsistent ... leading the central bank in the passive state of liquidity adjustment to
achieve the objectives of monetary policy.
Starting from practical requirements outlined, this project have selected research
topic is: "Liquidity management in monetary policy of the State Bank of Vietnam"
contributing more fully to the scientific arguments management of liquidity, practical
implementation at the State Bank of Vietnam and then to propose solutions to
improve the efficiency of the management of liquidity in order to meet the
requirements of operating monetary policy effectiveness.
2. LOCAL AND GLOBAL RESEARCH
Globally, there have been many studies related to the topic of monetary policy
(the tools of monetary policy, the objective of monetary policy...), and money market.
However the material directly related to liquidity management of central bank in
monetary policy execution in the world are not published much. The author
represents the study of this problem: Bindseil Ulrich (2000), Falko Fecht, Kjell G.
Nyborg, J'org Rocholl (2007), Simon T Gray (2008), Mohamed Afzal Norat (2008).
In addition, organizations such as the International Monetary Fund (IMF), European
Central Bank and the U.S.Federal Reserve Board also has a number of research articles
related to the topic. In studies in Vietnam, the research topics related to monetary
policy, the tools of monetary policy, the transmission channel of monetary policy
action has been much research interested, however, directly related to the operation of
the executive liquidity management in the monetary policy of the central bank is only
"Improving prediction method to enhance Liquidity regulatory capacity of central bank
in money market" of Deputy Governor – SBV Nguyen Dong Tien (2006).
Totally, in the world and in Vietnam, the researchs on liquidity management of
the central bank is limited and has not been verified and systematiced as well as a
verification completely and comprehensively, the study made no difference about
liquidity concept in terms of commercial banks and the central bank in every aspect,
the liquidity status changes affect each market and at different levels. So choose the
thesis focuses on systematic reasoning related to the management of the central bank
in terms of liquidity, and study the performance of this work at the State Bank of
Vietnam to increase operating efficiency of monetary policy.
3. PURPOSE
To clarify the theory on liquidity management operations: The concept of
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liquidity, supply and demand of liquidity, content management of liquidity, forecasting
methods of liquidity... Research on experience of management and forecasting
liquidity in some countries around the world, to figure out the lessons for Vietnam.
- Analysis of the management situation and forecast the liquidity of SBV in
operating monetary policy by itself.
- Propose solutions to address the issues raised in the liquidity management of
the SBV, improve quality and improve the management of liquidity to contribute and
enhancing the effectiveness of monetary policy.
4. OBJECTS AND SCOPES
Objects: research will focus on the basic theory in terms of liquidity
management of the central bank, the status of liquidity to execute the monetary policy
of the central bank by forecasting method from currency balance sheet and propose
management solution on liquidity of the central bank monetary policy.
Scopes: the project researches on the management aspects of the central bank, using
data on the Cash flow balance sheet of SBV primarily and analyzing from 2000 to 2012.
5. METHODOLOGY
The research applies deductive methods, systems analysis, reflecting analysis,
comparison, surveys, statistics, combining theory and practice, Qualitative analysis
combines quantitative models used single regression.
6. RESULTS
Thesis is the first science research project deeply and completely on the liquidity
management (in terms of the central bank) in the monetary policy of the State Bank
of Vietnam. Especially used qualitative research methods to clarify the scientific
arguments.
7. RESEARCH STRUCTURE
Besides Executive summary, Conclusion, the research has 3 chapters:
- Chapter 1: General theory of Liquidity management in the monetary
policy operation of the central bank
- Chapter 2: Status of Liquidity management in the monetary policy
operation of the State Bank of Vietnam
- Chapter 3: Solution to improve the Liquidity management in the
monetary policy of the State Bank of Vietnam
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CHAPTER 1
GENERAL THEORY OF LIQUIDITY MANAGEMENT IN THE
MONETARY POLICY OPERATION OF THE CENTRAL BANK
1.1. OVERVIEW ON LIQUIDITY AND ITS MANAGEMENT IN MONETARY
POLICY OPERATION OF THE CENTRAL BANK
1.1.1. Liquidity
1.1.1.1. Concept
"Liquidity" means funds available to meet its financial obligations, such as
customer cash, payment requirements, to meet loan commitments to customers,
payment for budget and credit repayment for central bank of the bank.
Under banking system perspective: Liquidity is capital strength of a financial
institution, is located in the banks' available capital.
On the management of the central bank: capital availability deposits at central
bank - is the amount of reserves that banks send to the country's central bank. It
includes: compulsory reserve deposits, demand deposits, etc. ..
1.1.1.2. Demand and supply on liquidity at the central bank
Demand on liquidity at the central bank
The demand on liquidity is understood as a set of demands to be met to make the
financial obligations of the banks with our partners, including central bank, the state
budget, other financial institutions and especially customers of the banks.
The demand on liquidityis formed by two parts: the free availability of capital
and policy requirements.
The free availability of capital: As the demand to meet the payment comes from
the intrinsic factor in the activity of credit institutions and outside the direct control of
the central bank.
The liquiditypolicy: the implementation of the central bank requires that banks
have to deposit an amount known as the reserve requirement.
The relationship between the free liquidityand the liquiditypolicy: a close
relationship with each other through the closing balance date of the payment deposit
accounts. In which the demand on capital availability depends on the required reserve
policies, the institutional factors and not change daily. The rest on the central bank
deposit accounts in order to meet the demand of liquidityitself.
Supply on Liquidity at the central bank
Supplying liquidity is the amount of money that the banks used to meet its
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financial obligations to stakeholders such as customers, budgets, with other banks or
the central bank.
Basically, the supply of liquidity of the banks is formed from two main sources:
(i) raising capital from the economy, (ii) additional supply from the central bank
through the channels: buying foreign currencies, the budget loans, loans for financial
institutions and a number of other terms. When considering the central bank provides
capital availability, the research focused on providing the liquiditycomes from the
change of the elements on the cash flow balance sheet of the central bank.
- The autonomous supply factors including net foreign assets, government net
lending, Other net assets.
- The supply on policy factors include Refinancing for banking activities in the
market.
1.1.2. Managing Liquidity of the central bank in monetary policy operation
1.1.2.1. Concept
Liquidity management is the task of central bank forecasting liquidity generally
for the whole system, establishing rules of conduct and the use of interventions to
adjust monetary conditions and the state of supply and demand of liquidity used in the
interbank market to achieve the ultimate objective of monetary policy.
1.1.2.2. The needs on liquidity management in monetary policy operation of the
central bank
The central bank controls liquidity to improve the effectiveness in monetary
policy operation
The central bank approves the forecast on capital availability state of the market,
determine the exact dosage and duration of the intervention will be the incentive to
market dynamics change in a positive direction, thereby achieving goals central bank
sets. We can say, central bank well manage the liquidity will improve the impact of
the policy tools to the real variables of the economy were chosen as policy goals in
each period, the national monetary policy.
Support the central bank to adjust the state of liquidity of the banking system
The forecasting liquidity of credit institution system will help the central bank
understands normal and abnormal of the market, then propose solutions on the state
capital availability on time through pumping money, adjusting the price mechanism.
It is important to keep the central bank to adjust the state of liquidity, because
the central bank understands that when the state of supply and demand imbalance in
liquidity - whether surplus or deficit - will push the central bank to implement the
