Government Favours Bolstering Tenge over De-Dollarisation, Says National Bank Chief

ASTANA – Kazakhstan’s Government and National Bank announced plans in February to support the increased role of the tenge in the economy through efforts to decrease inflation, protect tenge investments, support the expansion of non-cash payment methods and other steps.

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The National Bank plans to decrease annual inflation step by step, following a plan that hopes to achieve a 3 – 4 percent yearly inflation rate by 2020. To achieve this, the government is taking steps to enhance the role of the tenge in the national economy, including increasing the limit of tenge deposits guaranteed by Kazakhstan’s Deposit Insurance Fund from 5 to 10 million tenge, decreasing the maximum recommended interest rate on dollar deposits to3 per cent per year, prohibiting price determination for certain goods and services and developing non-cash payment options, reported Forbes.kz.

“Again, de-dollarisation doesn’t mean that someone is going to devalue or prohibit dollars. We just think that the national currency has to take its rightful place as a measure of value and a means of payment. That is why we are going to develop measures diversely. The first is the supporting of macroeconomic stability to decrease annual inflation. We expect to achieve 3 – 4 percent annual inflation in 2020,” said National Bank Chairman Kairat Kelimbetov at a Central Communications Service briefing on Feb. 12.

Kelimbetov also noted that authorities must work to strengthen tenge liquidity and increase demand and supply by means of domestic production. Supporting the expansion of non-cash payment options will also help combat the extensive black market in the country, he said.“All of us are witnesses of daily transactions. In fact, 93 percent of payments in Kazakhstan are processed in cash. This is a very bad situation for any economy, because in point of fact all of these payments aren’t taxed; that is, they are illegal. And we consider that the payments are often processed in U.S. dollars and exchange office networks encourage this. That is why we think that we have to establish some more order, including setting prices in U.S. dollars and [so-called] conventional units,” he said, according to Kapital.kz, referring to major purchases such as in real estate or of expensive items such as cars.

The Kazakh Government and the National Bank published a joint statement about economic policy guidelines for 2015 on Dec. 24. It did not contain the term “de-dollarisation.” Instead, the enhancement of the role of the tenge in the economy is the top priority. Dollarisation is the result of tenge weakness, Forbes.kz reported, and the National Bank’s efforts – including raising the deposit insurance amounts, decreasing interest rates for dollar deposits and stopping price setting in dollars – are intended to strengthen national currency rather than focus on eliminating dollars.The National Bank also plans to target inflation in the medium term, which will help increase the effective yield of tenge deposits, according to Forbes.kz.

Commenting on efforts to strengthen the national currency, Mazhilis Deputy Nurlan Zhazylbekov said, “Why have we to value everything in U.S. dollars if we have own currency? Of course, we will have difficulties in the beginning. It especially will impact parties that import goods. But we are already in the Eurasian Economic Union, so we should strengthen our tenge. Supporting dollars is dangerous. We need strict control, we are working on it and I think that within two months everything will be changed,” as reported by Kapital.kz.

Analyst Anton Soroko of the major Russian investment holding Finam, told Kursiv.kz,

“This is a long-term task and the question isn’t about the prompt cancellation of the use of the dollar, which is the second most-frequently used currency in the state. This process is possible along with the step-by-step development of the banking system of the state and the changeover to the floating tenge rate. All these tasks are interrelated and have to be accomplished together, otherwise the state will see additional turbulence in its financial markets. The de-dollarisation process in local financial markets has begun in different countries, but we have to understand that as of today, more than two thirds of transactions in the world are made in dollars, and nobody can change this paradigm.”