The Bank of the Lao PDR’s Strategy and Direction on Foreign Currency Management

The Lao kip has shown signs of stabilization in its exchange rate against the US dollar and Thai baht in recent months. These two foreign currencies remain the most widely used foreign currencies in the Lao PDR, playing a crucial role in trade and economic transactions.

To strengthen the management and stability of foreign currency flows within the country, the Lao government has taken significant steps over the past few years, amending the Law on Foreign Currency Management dated 7 July 2022 (“Foreign Currency Management Law”), and further expanding on and clarifying them by Prime Minister Order No. 10/PM issued on 14 July 2023 (“PM Order”).

Since then, the Bank of the Lao PDR (“BOL”) has implemented various methods and strategies to control and tighten the management of foreign currency in the Lao PDR, based on the Foreign Currency Management Law and the PM Order, as described below.

Foreign currency management

Below are some of the BOL’s methods and strategies for managing foreign currency use in the Lao PDR.

• While the BOL does not explicitly ban the possession of foreign currency in cash, it actively promotes the depositing of such currency into the banking system and mandates its conversion into Lao kip prior to conducting any transactions in the Lao PDR.
• Import-export operators are required to open a specific bank account for transactions relating to their import-export activities. They are also required to import the payments in foreign currency from the export of goods and services through their import-export bank account within the specific payment timeframe stated in the sale-purchase agreement or other contractual arrangement.
• Export operators are required to sell a certain percentage of their export foreign currency revenue to a commercial bank in the Lao PDR (amounts vary depending on the specific industry sector).
• A commercial bank account designated for foreign direct investment must be opened in the Lao PDR to facilitate the import of investment capital and the export of profits, dividends, and interest on loans to foreign countries. Furthermore, foreign investors must convert their foreign currency to Lao kip for use in the Lao PDR.
• There are specific circumstances under which the BOL will allow the use of foreign currency in the Lao PDR, these carry certain limitations and conditions.
• Individuals transferring foreign currency to a bank account under a different name from that of the transferor must provide supporting documents verifying the purpose of the transfer if the total transaction amount exceeds US$10,000 (or equivalent) per day. For entity and organization accounts, verifying documentation is required for transactions exceeding US$100,000 per day. Foreign currency transactions are subject to a 0.3% transfer fee, capped at a maximum of US$30.

The implementation of these regulations allows the BOL to assert more control over foreign currency and to promote the use of Lao kip in the Lao PDR, thereby contributing to its stabilization.

Lao foreign exchange

On 29 October 2024, the BOL issued Decision No. 1161on Foreign Exchange Markets to regulate the establishment of the Lao Foreign Exchange (the “LFX”), with the assistance of many major commercial banks in the Lao PDR, after the BOL had restricted currency exchange activities to commercial banks only since 2023.

The LFX functions as the primary and official foreign exchange market within the mobile banking platform, enabling users to convert currency between Lao kip, Thai baht, US dollars, and Chinese yuan, through the banking system. Currency conversions take place at a designated exchange rate and only during the market’s operational hours—9 AM to 3 PM. Transactions are subject to fees and conversion limits, allowing the BOL to maintain greater control over foreign currency flows and ensure stability between the local and foreign currencies.

The BOL’s future direction

Recent regulations by the BOL indicate a strategic shift toward strengthening the national currency, and while the Lao kip remains the primary currency, foreign currency can be used under certain conditions, particularly for international transactions and by entities engaged in cross-border activities.

These initiatives suggest that the BOL is moving toward stricter control and monitoring of foreign currency usage, with a clear objective of promoting the use of Lao kip, stabilizing the exchange rate, and ensuring greater financial stability within the country. It is safe to assume that future regulations will introduce even more restrictions on foreign currency transactions, to further stabilize exchange rates, curb capital outflows, and enhance financial transparency.

Businesses and individuals dealing with foreign currency should prepare for stricter compliance measures moving forward.

If you need further information regarding the above or the Bank of Lao’s policies on foreign currency management, please contact the undersigned or your usual VDB Loi adviser.