MP B.Javkhlan dis­cusses new Law on Cen­tral Bank lead­ing up to fi­nal dis­cus­sions in Par­lia­ment


Jan­uary 11 is the last day of dis­cus­sion for the amend­ments be­ing made to the Law on Cen­tral Bank. Mem­ber of Par­lia­ment B.Javkhlan, an au­thor of the Law on In­vest­ment Bank­ing, dis­cussed all of the changes that were made in Par­lia­ment and what the fi­nal ver­sion of the law will look like.

The fun­de­men­tal goal of the cen­tral bank is to main­tain the sta­bil­ity of the tu­grug. The new amend­ment to the Law on Cen­tral Bank sought to change this goal to main­tain­ing price sta­bil­ity or in­fla­tion rate, but this was not sup­ported and there­fore was not changed. What is your po­si­tion on this is­sue?

There are mea­sures that the cen­tral bank can take within its full rights and abil­ity. There are also things that it can­not do. What a cen­tral bank can do the best is to main­tain price sta­bil­ity, or in other words, pro­tect the in­tegrity of the public’s in­come. A cen­tral bank can main­tain a low in­fla­tion rate and im­ple­ment its pol­icy. The ex­change rate of the tu­grug is a di­rect re­flec­tion of the Mon­go­lian econ­omy. The main fac­tor for the ex­change rate is for­eign trade.

The flow of cur­rency into the coun­try and the bal­ance of pay­ments ul­ti­mately de­ter­mine the ex­change rate of the tu­grug. Yet, Mon­gol Bank lacks the ca­pa­bil­ity to work on or af­fect the bal­ance of pay­ments, the flow of cur­rency into the coun­try, and for­eign trade.

Men­tion­ing one very simple ex­am­ple is that there is a lot of Mon­go­lian pa­tients go­ing abroad to be treated in hos­pi­tals and a lot of money flows out of the coun­try be­cause of that. Mon­go­lia has a trade deficit with its north­ern neigh­bor and is only able to bal­ance that with trade with its south­ern neigh­bor. The cen­tral bank does not have the author­ity to man­age these is­sues. Since Cab­i­net is com­prised of politi­cians, mem­bers are re­luc­tant to be con­nected to the man­age­ment of the ex­change rate since it is a very sen­si­tive is­sue that brings a lot of crit­i­cism from the public.

As a re­sult, this is­sue is left for the cen­tral bank to deal with. In the grand scheme, Mon­gol Bank does not have the mech­a­nisms nor the author­ity to man­age this is­sue. Ba­si­cally, Mon­gol Bank only func­tions to an­nounce the ex­change rate. Yet, look­ing at the Law on Cab­i­net, there is noth­ing that re­quires Cab­i­net to main­tain trade bal­ance, bal­ance of pay­ments, or main­tain the in­tegrity of the tu­grug. There­fore, an­other sig­nif­i­cant re­form has been left in the dust with no ac­count­abil­ity. Par­lia­ment was not able to dis­cuss this is­sue at depth.

There is de­bate about whether or not Par­lia­ment will de­ter­mine the salary of the gov­er­nor of Mon­gol Bank. Can you please state your stance on this is­sue?

The fact that the salary of the gov­er­nor of Mon­gol Bank is be­ing dis­cussed in Par­lia­ment is frankly em­bar­rass­ing. Dur­ing the ses­sion of the stand­ing com­mit­tees, Gov­er­nor N.Ba­yart­saikhan said, “I did not think that this is­sue would be such a big topic. I wouldn’t have brought up the is­sue if this was go­ing to hap­pen.”

It is al­most comedic that stand­ing com­mit­tees have noth­ing else to dis­cuss. This does not con­cern pol­icy.

In­stead, dis­cus­sions needed to be tar­geted to­wards main­tain the sta­bil­ity of prices. The salary of the gov­er­nor of Mon­gol Bank is lower than that of his em­ploy­ees. It has been this way for 30 years. This is in it­self a bad sys­tem. Par­lia­ment will draft a guide­line for the cen­tral bank to de­ter­mine salar­ies for its em­ploy­ees. Of course, com­pen­sa­tion for a gov­er­nor will not be the same as that of ex­ec­u­tives in com­mer­cial banks.

Among the new amend­ments to the Law on the Cen­tral Bank, a mone­tary pol­icy com­mit­tee and a su­per­vi­sory com­mit­tee will be es­tab­lished. In ad­di­tion, there is an ar­ti­cle which states that the de­ci­sions of the cen­tral bank will be made on a con­sen­sus ba­sis. What is the main sig­nif­i­cance of chang­ing de­ci­sion-mak­ing to be on a con­sen­sus ba­sis?

It is a very sig­nif­i­cant step in the right di­rec­tion for the de­ci­sion-mak­ing process of the cen­tral bank to be changed to a con­sen­sus ba­sis. Com­pet­ing pro­pos­als and poli­cies be­ing brought up is a good thing. The most im­por­tant as­pect of this is that the de­ci­sions of the cen­tral bank will be more cor­rect and re­al­is­tic in con­nec­tion to the mone­tary pol­icy. In this as­pect, the le­gal re­form was im­por­tant.

How­ever, Par­lia­ment did re­move a few key points. For in­stance, the mone­tary pol­icy must be im­ple­mented for at least two years. Yet, the de­ci­sion has been made to ap­prove one ev­ery year. Chang­ing the mone­tary pol­icy an­nu­ally brings a lot of politi­ciza­tion into the is­sue. Ap­prov­ing one ev­ery two years does not mean that Mon­gol Bank will be to­tally sep­a­rate from Par­lia­ment.

The prece­dent to re­port in­for­ma­tion to Par­lia­ment and re­ceive rec­om­men­da­tions ev­ery quar­ter and six months is still in place. If the mone­tary pol­icy is changed ev­ery two years, it would mean a lot more in­de­pen­dence and au­ton­omy for the cen­tral bank to im­ple­ment its mone­tary pol­icy.

There was a goal in the 2018 mone­tary pol­icy to main­tain in­fla­tion at eight per­cent. If the guide­line was for two years, we be­lieve it could have been lower, maybe at around five per­cent.

Let’s dis­cuss the is­sue in con­nec­tion to the Law on Bank­ing. The cen­tral bank is man­dated to reg­u­late and im­prove the op­er­a­tions of com­mer­cial banks. Should a res­i­dent rep­re­sen­ta­tive from the cen­tral bank be al­lowed to reg­u­late the whole op­er­a­tions of a com­mer­cial bank? Or should a rep­re­sen­ta­tive only be sent if there is a sit­u­a­tion. There is also a lot of de­bate about the rights that a com­mer­cial bank has in re­struc­tur­ing. Can you elab­o­rate on this?

In gen­eral, for ev­ery 10 MNT that a bank has in its ac­count, it only owns around one MNT of that.

That nine MNT is the public’s money. There­fore, the cen­tral bank works to pro­tect the se­cu­rity of the public’s money. Mon­gol Bank makes de­ci­sions on the public’s be­half. The bet­ter the reg­u­la­tion and su­per­vi­sion of Mon­gol Bank on com­mer­cial banks, the safer the money will be. The law con­cern­ing com­mer­cial banks is about 30 years old. This law has seen three eco­nomic crises. We learned a lot from those crises.

In or­der to over­come the next eco­nomic cri­sis and to min­i­mize the loss of as­sets for the public, the mech­a­nisms of reg­u­la­tion for the cen­tral bank is be­ing im­proved.

There have been a lot of de­bate re­gard­ing the re­struc­tur­ing of banks. Some MPs are say­ing that this term has to be changed?

You are cor­rect. For ex­am­ple, the term “Re­struc­tur­ing Fund” has been in­cluded in the Law on Bank­ing. This was dis­cussed in the work­ing group and mod­i­fied to “Sta­bi­liza­tion Fund”.

Re­struc­tur­ing is not an is­sue that is di­rected to­wards in­vestors. The new amend­ments are de­signed to im­prove the health of the bank­ing sys­tem, en­sure the se­cu­rity of its cus­tomers, and set a ba­sis to over­come the next eco­nomic cri­sis. I want to clearly state that this is­sue is not con­cern­ing the own­ers of the bank and is not re­struc­tur­ing own­er­ship.

Newspapers in English

Newspapers from Mongolia

© PressReader. All rights reserved.