Lately, I’ve been busy with some research surrounding crowdfunding in Vietnam. Perhaps I’ll address some of those issues at a later date, but right now I want to discuss something I discovered during that research.

As of 1 July 2019, a Singaporean company VNDC Holding PTE., LTD., introduced the VNDC stablecoin to the market (You can access their website here), a cryptocurrency that is pegged to the Vietnamese Dong.

What are Stablecoins?

The VNDC is a stablecoin. Unlike cryptocurrencies such as Bitcoin or Dogecoin, a stablecoin is linked and essentially backed by a fiat currency. This allows for the coin to avoid the volatility in trading that has been demonstrated by the influence of a few individuals on the price of Bitcoin, e.g., Elon Musk. Because it is linked to a fiat currency, in this case the Vietnamese Dong, the price of the coin is stable compared to actual currency. While this does not allow for the massive profits and losses that attach to regular cryptocurrency, it does provide the assurance that the stablecoin will have approximately the same value throughout the process of initiating and completing a transaction. It also makes exchanging the stablecoin for fiat currency more efficient as the value of the stablecoin is already pegged to fiat currency. Finally, it allows for those staking the stablecoin to see regular growth in their investment as the operators of the stablecoin can use the stablecoin on the actual market through a consistent currency exchange.

But is a stablecoin like VNDC a cryptocurrency according to the laws of Vietnam? In 2014, the state bank defined Bitcoin as

a kind of digital currency (virtual currency) which is neither issued by the government nor a financial institution but is created and operated based on the systems of computer connected to peer-to-peer internet networks.

While this definition is not official as it was offered in a press release, it is the only definition the state bank has provided for cryptocurrency and, under this definition, VNDC, which operates without the backing of a financial institution and is based on internet technology utilizing the blockchain would be considered a cryptocurrency. This remains true despite the fact that the value of the VNDC is pegged to a fiat currency, such limitations on its value do not obviate the other characteristics which define it as a cryptocurrency.

As I noted in El-Salvador, Cryptocurrency and Vietnam and Cryptocurrency in Vietnam, Vietnam does not currently recognize the use of cryptocurrency as a lawful means of payment. In fact, the state bank has gone so far as to require banks and other financial institutions to be alert to transactions that may be for the purchase of cryptocurrency, terrorist funding, and money laundering. (A veritable smorgasbord of legitimacy in which to be included.) This means that, under the current law, if the VNDC stablecoin is, in fact, a cryptocurrency, its purchase by means of Vietnamese-based bank accounts may be monitored and reported to the authorities and the amounts suspended according to regulations of the state bank.

But over the last decade in Southeast Asia I’ve noticed that little things like laws don’t necessarily stop people from doing something. The VNDC stablecoin is supported by Kardiachain, a Vietnamese blockchain startup, and is used as a payment method for for use as a payment method. Other e-commerce sites targeting Vietnamese users have also partnered with VNDC in order to process payments adding a sense of legitimacy to their product and suggesting some form of government approval on the part of Vietnam’s authorities.

Vietnam and the VNDC Stablecoin

While VNDC may be a stablecoin pegged to the Vietnamese Dong, it is not a Vietnamese cryptocurrency. The VNDC exchange, wallets, and other apparatus are all owned and controlled by a holding company in Singapore. The VNDC stablecoin is a foreign cryptocurrency that is targeted to Vietnamese citizens and its primary webpage is in Vietnamese. Thus, it would be considered a foreign e-commerce service provider under existing regulations.

Now, this may not provide too many problems at the moment, but that moment is soon to change. Already, Vietnam has moved to require purchasers of foreign e-commerce goods and services to withhold taxes on their purchases (see Foreign E-Commerce Providers in Vietnam) and is considering myriad decrees that would extend Vietnam’s control over foreign e-commerce service providers who are targeting Vietnam. (See Indochine Counsel’s official special alert on the draft decree on internet services and New Online Advertising Restrictions in Vietnam and Vietnam’s New Draft Data Protection Law.)

Whatever criteria that the government eventually decides to apply to foreign e-commerce service providers doing business across the border into Vietnam, in order for them to continue to operate they will be obliged to create some sort of presence within the territory of Vietnam. Either a representative office, a branch, or a legal representative located in Vietnam. In this way, Vietnam hopes to make the foreign e-commerce service providers liable to Vietnamese law through the ability to serve process on those companies in such a manner that will be enforceable in the courts.

Another element of these new laws being considered requires the offshore e-commerce service providers to comply with requests from the Vietnamese authorities regarding offending content (an article yet to be written). The requests will come in the form of a communication to the legal representative in Vietnam and will request that the foreign service provider alter or remove the offending content so that it is no longer in violation. After a certain number of requests, I believe two, and if the foreign service provider still refuses to comply, then the Vietnamese authorities will block the website of the service provider in Vietnam.

Remember, this is still under consideration and it’s not yet clear what criteria will be used to determine whether the offshore provider is required to have a presence in Vietnam. One option requires a 100,000 transactions arising in Vietnam, one requires the website be in Vietnamese, and still others require the website be registered as a .vn site. All of this is in the future, but once it becomes law, and unless the state bank adopts cryptocurrency in some form as a legitimate means of payment, then the VNDC stablecoin will be viewed as a foreign e-commerce service provider operating in an illegal sector and likely to be blocked by the authorities.

Vietnam and Cryptocurrency, a Review

Note the caveat. In a recent plan issued by the prime minister for the period from 2021 through 2026 he mentioned in one line that he would like the state bank to investigate cryptocurrency with the possibility of adopting it for use. The document ran in the tens of pages and this bit of news comprised one line. But holy hannah did the press go crazy. Headline after headline announced that Vietnam was considering the use of cryptocurrency, that the prime minister had ordered the state bank to adopt cryptocurrency, and other variations on the theme. The fact of the matter is, the prime minister simply asked the state bank to investigate the possibility. Technically, the state bank formed a committee for that purpose two years ago and we still haven’t heard anything on the issue. I think it highly unlikely that Vietnam is going to change its policy on cryptocurrency anytime soon, and that means that when the draft decrees on cybersecurity and data protection and online advertising all come into effect, the VNDC stablecoin is going to be blocked by the Vietnamese government as a violation of existing laws.

That said, the government is not going to confiscate the VNDC already purchased by Vietnamese citizens, there are no provisions for the nationalization of currency without providing a fair payment and as VNDC does not purport to actually be Vietnamese Dong it does not run afoul of laws against forgery or fraud. It does seem like it has a limited shelf life, however, as the Vietnamese government has repeatedly demonstrated a desire to clamp down on the use of innovative technology and ensure that it can control what does and doesn’t cross its borders in the digital domain.