Digital currencies and cryptocurrencies

Mongol Bank has launched a campaign called “Digital payments in a digital era” in order to promote the widespread adoption of digital currencies and payments. Senior Specialist at the Payment Systems Department at Mongol Bank A.Batsaikhan discussed the new advancements including digital currencies in the country’s fintech services.

What has been a recent prominent area of development in international finance?

One subject that has been garnering much attention in international finance is undoubtedly cryptocurrencies and the foundational blockchain technology it is based on. There is an opportunity to use this technology in the payment system. Many central banks are conducting studies and experiments on using blockchain in their payment system. For example, Singapore’s central bank conducted a long experiment to adopt blockchain technology in its payment system and recently published a report on it.

The report said that the technology of blockchain is too new at the moment and the advantages of using the technology are not sufficient currently. The costs are particularly high, therefore it will not be adopted in the payment system. But since the technology is rapidly developing, the central bank said it will continue its experiments and underlined that there may come a day where it will be widely adopted.

What is Mongolia’s policy on cryptocurrencies?

Mongol Bank and the Financial Regulatory Commission (FRC) have twice released statements warning of the potential dangers of cryptocurrencies. The central bank warned the public that there have been many instances where people have lost money due to the volatile nature of investing in cryptocurrencies. In addition, the FRC announced that cryptocurrencies are not a legal tender in Mongolia. The law states that all transactions for goods, services, and employment must be made in tugrug. Any prices products, services, and employment must be stated in tugrug. This essentially means that a person cannot pay for a product at a store with bitcoin, it would be illegal.

Since many countries are already implementing these technologies in some way, what should our policy be on it moving forward?

As cryptocurrencies and blockchain technology use is developing all around the world, Mongol Bank is closely watching the developments. But that does not mean the central bank is sitting idly. We have already set up a working group to research about the use of blockchain technology and the first report produced by the group has been presented to the administration of the central bank.

In accordance to the law, cryptocurrencies cannot be used for payment but there is an opportunity to use them for investment. However, this issue does not concern the national payment system, therefore Mongol Bank cannot act on this issue unilaterally.

Some businesses have already begun issuing their new digital currencies. For example, the digital currency Candy is already in use. What is the advantage that these digital currencies will offer?

Mobifinance received permission to issue its Candy digital currency from Mongol Bank. This is unique in that it was the first license provided by the central bank to issue a digital currency. From the consumer side, digital currencies have the same value and uses as a physical tugrug bill. Digital currencies offer the advantage of being easy to transfer from anywhere and also reduces the risk of overspending. It is very easy to register to become a user. It is easy as sending a text message. There are no hurdles like physically meeting with a representative and signing a contract. On the business side, companies will have the opportunity to establish a contract with the digital currency issuer and accept said digital currency for payment. This is advantageous in that it does not require the seller to purchase any new equipment or pay registration fees. In addition, the time and effort put into storing or transporting physical bills will be reduced significantly. Sellers will only pay a small fee on every transaction.

One candy is equal to one MNT. How would a person acquire a digital currency like Candy?

In the case of Candy, a user would have to pay whatever amount in tugrugs to receive an equal amount in digital currencies. Essentially, a consumer will trade in their MNT for Candy. Many stores and restaurants have already begun to accept Candy.

How will consumers be protected from any risks involving digital currencies?

The service of digital currencies will not only be limited to banks, all individuals and companies will have the opportunity to receive authorization to operate a digital currency. As a result, the requirements and standards imposed on an operator of a digital currency is very high. The procedure clearly states what must be included in the contracts between a digital currency operator and a user, contracted representatives, and organizations that will recognize and use the currency.

An operator of a digital currency must have an equal amount of money stored in the bank account as a sort of collateral. For instance, if an operator has issued one million digital currency units, they must have 100 percent of one million MNT in their bank account. This allows the final consumer of the digital currency to be protected from all risks. All of this is meant to protect the users of digital currencies.

What are the law, rules and procedures used to regulate foreign and domestic payments and transfers. Is it the job of Mongol Bank to regulate this?

In accordance to the law, any payments and transfers made within Mongolia are regulated by the central bank. However, our national laws do not affect any outgoing international transfers. All banks have an international network or a correspondent bank to conduct foreign transfers. These channels are used to conduct foreign payments and transfers, therefore Mongol Bank does not have authority over these kinds of transfers.

Recently, there have been rapid developments such as online international forex services. How ready is Mongol Bank in terms of policy for these types of changes and advancements in finance?

The new amended version of the Law on National Payment System came into effect this year. This legislation allows financial organizations outside of banks to participate in the payment system. One of the first steps of this was the approval of the rules and procedures on digital currencies, this allows non-banking financial institutions and even limited liability companies to issue digital currencies. Moving forward, Mongol Bank is focused on researching and finding ways in which non-banking institutions can be further involved in the payment system.