BoM may restrict FX withdrawal if Parliament passes bill on currency

ZGM DAILY

2018-10-15 09:39 GMT+8

​LAW ON CURRENCY REGULATION WILL ALLOW BOM TO CONTROL FX FLOW​

The Bank of Mongolia (BoM) included an article that can allow the bank to temporarily restrict withdrawal and transfer of foreign exchange on the draft Law on Currency Regulation, which was passed by the Parliamentary Standing Committee on Economy.

BoM explains the article is aimed at maintaining financial stability and reduce dollarization as trade deficit pressures the currency rate. Furthermore, it will allow the bank to control currency rate during sharp volatility. In the first eight months of 2018, the balance of payment totalled USD 361 million in deficit. Within the frames of the International Monetary Fund’s Extended Fund Facility arrangement, Mongolia agreed to have a foreign exchange (FX) reserves of 1-year of average import purchase.

Foreign exchange control will reduce investment, warn economists

Officials highlighted that Mongolia’s current FX reserves can cover six months of import purchase. The BoM set a goal to continue the reform in banking and financial sectors on the 2019 Monetary Policy Guidelines. Thus, several bills will be prepared within the frame. 

For instance, the bills on Financial Consumer Protection, Development of Secondary Market for Asset Management and Improvement of Legal Regulation of Treasury. The economist club of Bloomberg TV Mongolia highlighted that the Government’s control on fx in and outflow has a negative effect of reducing investment.

On the contrary, the BoM views the draft Law on Currency Regulation will reduce FX risks. “The flexibility of currency rate will help protect the economy from foreign shock and boost export competitiveness,” highlighted the Governor of BoM Bayartsaikhan Nadmid.

Furthermore, the bill on Financial Consumer Protection will be a strong impetus in reducing interest rate. The bank explained that the lack of identification of financial consumer brought them into an uncertain situation, ultimately harming their rights. The Parliament is expected to discuss the bill soon. 

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