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The bank of the Lao PDR mandates exchange bureaus to tie up with commercial banks

Our valued member, VDB Loi had published another interesting article regarding the Exchange Bureaus to tie up with Commercial Banks mandated by the Bank of Lao PDR.

The Monetary Policy Department of the Bank of the Lao PDR (“BOL”) issued Instruction No. 878/MPD on 2 August 2021 (“Instruction No. 878”) to implement its mandate requiring all currency exchange bureaus operating in the Lao PDR to become representatives of local commercial banks on or before 11 October 2021. Those that fail to do so will see their business operation licenses automatically revoked. The BOL issued this mandate on 12 July 2021 via Notice No. 758/MPD (“Notice No. 758”).

The Lao PDR currently follows a managed floating foreign currency exchange policy which prohibits commercial banks and exchange bureaus from offering exchange rates outside of the permitted official rates stipulated by the BOL in Decision No. 801/BOL dated 5 October 2015. Under such decision, the official exchange rate band for USD to LAK is set at ±0.25% of the daily reference rate published by the BOL while the exchange rate for Euro to LAK is pegged at 0.50%; for THB to LAK at 0.75% and for all other currencies at 2% of the BOL’s daily reference rate.

However, until now, the BOL has not been able to implement its foreign currency exchange policy effectively, as U.S. dollars and Thai baht continue to be the preferred mediums of exchange in the Lao PDR. As a result, the majority of exchange rate bureaus have continued to offer market-determined rates across the country resulting in a weaking Lao Kip and inflation in the costs of goods and services in the domestic market. As of today, the BOL’s official exchange rate for USD to LAK is set at LAK9,922/USD, whereas the exchange rate offered by the currency exchange bureaus is about LAK11,670/USD.

All exchange bureaus that are currently licensed to operate in the Lao PDR are required to make a request to a commercial bank to act as its representative in providing foreign currency exchange services in the Lao PDR. An exchange bureau can only represent one commercial bank at a time; however, a commercial bank can have more than one exchange bureau acting as its representative, depending on its resources and capacity.

Any exchange bureau that fails to enter into a representative agreement with a commercial bank in the Lao PDR by 11 October 2021 will not be permitted to operate foreign currency exchange services and their license will be revoked by the BOL.

Exchange bureaus will no longer be able to provide higher rates than the official foreign currency exchange rate, as the rates will be fixed by the commercial banks and the exchange bureaus have to report their compliance with the terms of the agreement to the commercial banks on a daily basis.

For more information on the regulatory changes in the Lao financial sector, or for any other queries about the legal and regulatory environment in the Lao PDR, please feel to contact our member at the VDB Loi Laos office:

Source: VDB Loi