Tugrug strengthens against yuan, but weakens against US dollar

Chinese yuan reached 400 MNT in January but fell by eight MNT to 392 MNT on Tuesday at Naiman Sharga Currency Exchange Center, while tugrug continues to depreciate against the US dollar, reaching 2,754 MNT.

Normally, tugrug considerably depreciates against yuan ahead of Tsagaan Sar as traders buy up yuan to stock up on goods for the national celebration. But the demand for yuan is low this year as the country has barred the borders as part of the coronavirus prevention measure.

Currency exchangers are currently inactive but they expect yuan to bounce back up once the border closure is lifted.

“The border closure caused the yuan to weaken (against tugrug). Since the borders were closed off, currency exchange rates are depreciating, especially the rates for yuan. We have no customers now. Without any exchange, we have no work to do or income. Usually, this is the period where we’d be bursting with people. But now, we’re closing early. Without customers, we have no need to stay late. Not just because of the border shut down but even after news of the coronavirus broke out in January, we started getting fewer people,” said currency exchange dealer D.BatErdene. “The yuan would have stayed at 400 MNT if the border closure hadn’t been imposed. However, euro has been rising lately. Euro was equivalent to 3,030 MNT last week, but now, it’s reached 3,055 MNT. This is connected to the international exchange rates.”

The government issued a close down on border crossing with China from January 31 to March 1 to prevent the coronavirus from spreading into Mongolia. Trains between Ulaanbaatar and Erenhot have been put to a halt through March 2.

“In connection to the government’s decision to shut down some borders with China and place an entry ban, the demand for yuan declined and its exchange rate against tugrug has depreciated,” explained Mongol Bank.

“It’s difficult for Mongol Bank to buy foreign currencies from the local market to raise foreign reserves right now. For starters, we’re working with the government to remove currency exchange swings caused by Mongolia's foreign trade concentration. To be more specific, government and state-owned companies comprise a considerable portion of entities that supply foreign currencies to Mongolia. Mongol Bank views that it’s appropriate to buy currencies from these entities and supply to the market without causing swings and so we’re operating this way. Last year, the central bank bought 2.3 billion USD from the market and supplied 2.9 billion USD back.”

On the other hand, the US dollar is still going strong against the tugrug, reaching 2,754 MNT as of Tuesday. This is eight MNT higher compared to January 1, 2020.