Member of Parliament T.Ayursaikhan put forward a proposal to President of Mongol Bank N.Bayartsaikhan on October 6, submitting a plan for the central bank to stabilize exchange rate fluctuation and increase the purchasing power of MNT.
MP T.Ayursaikhan’s proposals are as follows:
- Prohibit entrepreneurs and individuals who are not conducting business in foreign exchange markets from holding foreign currency accounts.
- Ban the issuing of foreign currency loans to non-banking financial institutions.
- Stop putting the weight of poor state policies on the backs of entrepreneurs and individuals, and transfer their foreign currency loans to MNT.
- Ban commercial banks from issuing foreign currency loans unless entrepreneurs and individuals specifically request them.
Mongol Bank responded to the proposal and noted that the foreign exchange market sets currency demands, and the MNT fell into decline against foreign exchange rates because external and foreign currency declined at banks in June.
Mongol Bank said it worked to stop MNT depreciation and avoid financial imbalance after the bank’s policy interest was raised by 4.5 percent by the Board of Directors of Mongol Bank in August 18. Central bank officials pointed out that the MNT rate is in decline because of budget deficits, a lack of foreign investment, and demands from the foreign exchange market.
In response to the four points in the MP’s proposal, Mongol Bank replied:
- Limiting access to foreign currency accounts would probably diminish investor’s credibility in Mongolia during challenging economic times, and conflicts with basic legal principles
- The Financial Regulatory Commission (FRC) controls the operations of non-banking financial institutions, and they issue issuing foreign currency loans under certificates issued by the FRC.
- Entrepreneurs and individuals with foreign currency loans have the option to pursue foreign currency swaps, to transfer their loans, and to reduce their operational risks.
- After commercial banks and individuals agree on interest rates, terms, and other conditions for loans, they create loan contracts, so if there is any issue with commercial banks to forcing entrepreneurs and individuals to take out foreign currency loans, legal authorities should be notified.