Modernising the Reserve Bank of Vanuatu

pacificlegalnetwork
18 hours ago
6 min read

What Vanuatu’s new Reserve Bank Act really means for financial institutions

Vanuatu’s financial landscape is undergoing one of its most significant reforms in decades. The Reserve Bank of Vanuatu Act 2025 (Act), was passed on 6 November 2025, and replaces the Reserve Bank of Vanuatu Act [CAP 125] (the Old Act), overhauling the structure, governance, powers and responsibilities of the Republic’s central bank.

For Vanuatu, balancing global economic pressures, digital transformation and the need for more resilient institutions, the new Act signals a shift towards a more internationally credible financial system.

Objectives

While the Old Act sets out the role of the Reserve Bank of Vanuatu (RBV) to regulate money, supervise banking, advise government and promote monetary stability, the new Act’s principal objectives send a clear message about the RBV’s priorities:

1. to achieve and maintain domestic price stability;

2. to contribute to the stability of the financial system in Vanuatu; and

3. to support the Government’s general economic policies.[1]

Autonomy of the RBV

The new Act expressly prevails over all other acts, meaning its powers will override conflicting legislation and the Government must consult the RBV before introducing any other bill that may affect its functions. [2]

Additionally, the Act introduces an express autonomy clause. The RBV, its decision makers and employees “must not request or act on instructions from any person or entity including the Government”.[3]

This new statutory hierarchy broadens the RBV’s mandate and enforcing autonomy strengthens its protection against interference, making the RBV a less politically vulnerable institution.

This legal insulation is largely beneficial as it reduces the risk of short-term political interference in inflation management and improves the Bank’s ability to pursue is price stability objective. However, the supremacy provision may cause tension with other ministries or agencies with overlapping mandates, for instance, the Vanuatu Financial Services Commission (VFSC) and the Vanuatu Financial Intelligence Unit.

Practically, financial institutions should prepare for stronger regulatory dialogue with the RBV and build stakeholder engagement into their regulatory-response plans.

Governance model

The new Act reshapes the RBV’s governance model. It vests in the Governor broader operational powers[4] but the Board and specialist committees for audit, management, monetary policy, governance and investment embed important checks and balances in the RBV’s governance model.[5]

The Act also introduces a minimum professional criteria for Board members that was not previously mandated under the Old Act, and an Evaluation Committee will independently assess Board candidates.[6]

Raising board standards and creating oversight committees means the Governor should have less unilateral decision-making power and we are likely to see more consistent regulatory execution.

Broad supervisory powers

The Act repositions the Bank at the centre of all financial oversight in Vanuatu. Its supervisory remit now expressly covers:

domestic banks;
international banks;
insurance businesses;
payment system operators; and
any other regulated financial institutions.[7]

This consolidation brings Vanuatu in line with international regulatory standards, where fragmented supervision is replaced with unified oversight. The new Act aims to improve coordination and consistency in regulation, reducing the risk that some entities fall through regulatory gaps.

Digital currency

The new Act introduces the recognition of digital currency as a form of legal tender in Vanuatu. [8] It gives the RBV powers to design, issue and regulate digital currency, [9] a provision that very few central banks in the Pacific have contemplated.

This marks a significant shift in the RBV’s stance on digital currency. In 2017 and 2018, the RBV issued press releases advising against the use of private cryptocurrencies, highlighting their volatility and lack of regulation.[10] Those advisories stressed that cryptocurrencies were not legal tender and posed AML/CFT and consumer risks.

These provisions under the new Act’s digital currency framework does not mean that private cryptocurrencies will become legal tender. Instead, it likely creates a legal basis for the implementation of a government sanctioned Central Bank Digital Currency (CBDC), although the term “digital currency” is not defined by the legislation.

The Bank of International Settlements has advised that any CBDC must be introduced carefully so as not to compromise financial stability, and to complement existing forms of currency. The RBV will be tasked with ensuring that a CBDC is able to coexist with the Vatu and is not at risk of destabilising the banking system.

The VFSC will continue to administer licences for financial dealers and virtual asset service providers under the Financial Dealers Licensing regime, in line with the new Virtual Asset Service Providers Act (2025).[11] The VFSC has explicitly stated that private cryptocurrencies are not legal tender in Vanuatu.[12] We are yet to receive clear confirmation from the VFSC nor the RBV on how the dealing in digital currencies will be managed under the new regime and whether there will be practical overlap between the Financial Dealers Licensing framework and the new CBDC.

Alignment with international standards

The new Act is deliberately aligned with the International Monetary Fund’s Best Practice Guidelines and Basel Core Principles for Effective Banking Supervision. Provisions including a legally protected price stability objective and statutory embedded non-interference mirror IMF guidance. Professional board standards, clear appointment criteria and introduction of specialist committees align with the expectations outlined in the Basel Core Principles.

What does this mean for financial institutions?

These reforms will have a very real impact on how financial institutions operate in Vanuatu.

More demanding supervision

The new Act grants the RBV broad powers of inspection and to gather information, with harsher penalties for non-compliance.[13] Financial institutions should prepare for:

more frequent and detailed reporting requirements;
more comprehensive onsite examinations;
mandatory auditor certifications; and
administrative penalties for inaccurate or incomplete submissions.

Compliance functions may need to be better resourced, with stronger internal audit and data governance capabilities.

New controls

With broader authority to regulate interest rates, credit and loan types, the RBV will have the tools to intervene in lending conditions that could threaten financial stability. While these powers are unlikely to be used excessively, their existence mean that credit providers will need to review lending frameworks, pricing models and client documentation. The mere possibility of RBV intervention means that financial institutions will manage loans with the understanding that the RBV can step in, adding a layer of uncertainty.

Direct oversight over payments systems

Providers of e-money and digital wallet services will now fall within the purview of the RBV under the new Act. This equates to stricter licencing obligations, minimum standards of operations and reporting obligations that these providers may not have faced before.

This expansion of the RBV’s oversight overlaps with the VFSC’s remit. Under the new Act, e-money issuers will need to obtain RBV licensing and meet prudential standards. In practice it is likely that the RBV will take primary regulatory authority over payment system operators in light of the supremacy provision, while the VFSC will continue to be the regulator of virtual asset service providers.

International credibility

The new Act may contribute to a stronger international reputation for Vanuatu’s financial system. A central bank with stronger governance, greater insulation from political influence and more robust financial stability tools sends a signal that Vanuatu is looking to align itself with international standards.

While Vanuatu was delisted from the Financial Action Task Force “grey list” in 2018, it remains listed on the European Commission’s Delegated Regulation in relation to third countries which have strategic deficiencies in their Anti-Money Laundering and Counter Terrorism Financing regimes.[14] For a country that relies on remittances and must maintain correspondent banking relationships, improving the RBV’s reputation is particularly important.

What happens next?

While the Act has been passed, it has yet to commence. It is expected to come into effect in 2026 once a gazette notice, including date of commencement has been published. The real impact of the new Act, and how quickly financial institutions will need to adapt, can only be measured by how quickly the RBV brings its new powers to life by implementing directives and using its supervisory functions.