The Bank of the Lao PDR Issues New Decision to Manage Foreign Currency Exchange and Stabilize the Lao Kip

On 14 June 2022, the Bank of the Lao PDR (the “BOL”) issued Decision No. 449/BOL (“Decision 449”) to manage currency exchange services provided by commercial banks and currency exchange bureaus operating in the Lao PDR. The purpose is to ensure the stability of the Lao Kip (“LAK”), which has weakened considerably against the U.S. dollar, and has been trading on the domestic market at a value below the BOL’s official exchange rate, and to close this exchange rate gap. Effective immediately, Decision 449 replaces Decision No. 109/BOL dated 1 February 2019.

Below are the key takeaways:

Application and documentations

Decision 449 applies to all individuals, legal entities, national and international organizations, commercial banks, and currency exchange bureaus doing business and carrying out monetary transactions within the Lao PDR.

Purchasing foreign currency

Commercial banks are allowed to buy foreign currency from individuals, legal entities, and organizations operating businesses in the Lao PDR, both domestic and international. However, licensed currency exchange bureaus are only allowed to buy foreign currency from individuals, and their daily buying limit cannot exceed their respective registered equity capital. In other words, currency exchange bureaus are no longer permitted to purchase foreign currency from legal entities or other organizations operating in the Lao PDR.

Selling foreign currency

Commercial banks and currency exchange bureaus are allowed to sell foreign currency to individuals within the selling limit of LAK15 million per person per day. Customers must state a clear purpose for buying the foreign currency as well as provide their ID card, family book, or passport for evidence.

Currency exchange bureaus are no longer permitted to sell foreign currency to legal entities or organizations. Only licensed domestic commercial banks are allowed to sell foreign currency to such legal entities and organizations. Priority will be given to those entities and organizations who require foreign currency for specific market sectors such as fuel and medicine, for importing necessary products into the Lao PDR, and for the specific purposes listed under the Law on Foreign Exchange Management No. 55/NA dated 22 December 2014.

As required under Article 10 of the abovementioned foreign exchange law, entities and organizations operating in the Lao PDR are entitled to purchase foreign currency for the following purposes only:

1. To pay for goods imported from overseas;
2. To pay for service fees that are associated with importing/exporting goods such as transportation, insurance, transit warehousing charges, and other service fees;
3. To repay foreign loans;
4. To assist foreign countries as approved by the government of the Lao PDR;
5. To transfer profits and dividends, capital, interest, and other service charges of foreign investors and to repatriate the wages and salaries of foreigners back to their home countries or third countries;
6. To transfer money for investments overseas;  
7. To finance study, travel, visits, and medical treatment overseas; and
8. Other purposes per the relevant regulations of the BOL as issued from time to time.

Moreover, when conducting foreign currency exchange services, commercial banks must ensure that customers present all necessary documentation in a timely and accurate manner. Individuals, entities, and organizations receiving foreign currency by exchanging funds at commercial banks must deposit the foreign currency in their bank account to make payments to foreign countries.   

Exchange rate

Commercial banks and currency exchange bureaus must set the exchange rate in compliance with the regulations issued by the BOL. When exchanging one foreign currency for another foreign currency, it must first be converted into LAK and the conversion must be consistent with the BOL’s instructions and requirements.

Reporting 

The head office of each commercial bank must submit reports on their foreign exchange activities to the Monetary Policy Department of the BOL as specified under Decision 449. Commercial bank branches located in the provinces must provide information on their foreign currency exchange activities to the BOL branch located in their province.

Other foreign currency control initiatives by the BOL

Decision 449 follows other initiatives by the BOL to tighten foreign currency control, such as Instruction No. 878/MPD, which was issued by the Monetary Policy Department of the BOL on 2 August 2021 and required all currency exchange bureaus operating in the Lao PDR to become representatives of local commercial banks on or before 11 October 2021. The instruction stated that any currency exchange bureau that failed to enter into a representative agreement with a commercial bank by that time would not be permitted to operate foreign currency exchange services and their license would be revoked by the BOL.

If you have any questions about this alert, please contact the undersigned or your usual VDB Loi adviser.