Sunday, August 30, 2015

De-dollarisation of Kazakhstan Economy - some thoughts

I have read many news in the past that the President of Kazakhstan Nursultan Nazarbayev has stressed to work for de-dollarisation of economy. This means making people trust more on Tenge, and gradually phasing out dollars in local economy. This is absolutely required as highlighted by US Ambassador recently where he urged people to think in "Tenge".

I am writing on Kazakh Tenge for the past few weeks and had promised in this post that I will write something on what Kazakh Government can do. Here is my post on how to achieve de-dollarisation in Kazakh economy and its advantages.

I had mentioned previously that Kazakhstan is too liberal to allow to hold foreign currency to domestic population and there is a need to tighten legal provisions in the country to introduce de-dollarisation. I will argue it with some examples.

Let us first of all see what authorities are saying on the need of "de-dollarisation".

Here is a news published in Astana Times mentioning that the National Bank of Kazakhstan Head (National Bank Chairman Kairat Kelimbetov) is committed to do de-dollarisation step by step. Two interesting things have been mentioned in the news. They are: 1. there is no attempt to stop the dollar transaction completely, 2. the prescribed rate of interests in USD deposit can not be more than 3%. These attempts are partially good. The similar news was reported by

The news have also said that Kazakh authorities have mandated that the prices of the goods should be compulsorily mentioned in Kazakh, and not in USD.

Now, let me prescribe some ideas how Kazakhstan can implement de-dollarisation in this country.

1. Stop foreign currency deposit schemes: What I have seen in Kazakhstan is that it's easy to open fixed deposit bank account in foreign currencies (like in USD, EUR, GBP etc.) by anyone if he/she has a tax number. It is very shocking. Yes, it was a shocking revelation to me as in India, foreign currency account is not popular as there are restrictions.

In this respect, Kazakhstan is very liberal and it needs to move to slightly restricted regime.

So, it is time not to allow anyone (at least to citizens and permanent residents of Kazakhstan) to open fixed deposit in foreign currency. Therefore, government of Kazakhstan should give notice to all foreign currency deposit holders to convert their deposit to tenge within say 6-9 months and on certain cut-off date, the deposit will automatically convert to tenge account by applying the market rate of exchange of that day. National Bank of Kazakhstan can instruct with respect to rate of interest for such deposits which are made from conversion of foreign currency to Tenge. It may look harsh but this is in national interest and is absolutely required.

There can be small exceptions in this regard like in India but this exception will not be popular. This will have a positive impact on de-dollarisation policy of Kazakhstan. In India, there is a concept called Resident Foreign Currency (Domestic) Account. It can be held by residents as current accounts in foreign currencies. So, first of all, this will be a current account and no interest will be paid. Secondly, in India, only maximum amount of USD 2,000 per person can be deposited in Resident Foreign Currency (Domestic) Account. Kazakhstan can replicate the similar model where per person 2000-5000 USD may be allowed to be kept in Resident Foreign Currency (Domestic) Account. I am sure such accounts where there will be no interests given will not be popular among the Kazakh masses and it will bring a positive impact on the de-dollarisation.

When it comes to Resident Foreign Currency (Domestic) Account, Kazakhstan can replicate the similar model as in India. For example, what should be the source of money which goes to Resident Foreign Currency (Domestic) Account? Can you buy some foreign currency in the bank or in open market and open a Resident Foreign Currency (Domestic) Account? The answer is "No" in India.

The Resident Foreign Currency (Domestic) Account in India should be funded out of foreign exchange repatriated from abroad. So, the source of such foreign currency should be abroad. For example, you could have sold your shares, or property outside the country, or should have got as a salary or wages outside country, or should have received as gifts/presents from someone outside country. Therefore, only such foreign currencies which were earned or gained outside Kazakhstan should be allowed to form part of Resident Foreign Currency (Domestic) Account in Kazakhstan to achieve de-dollarisation

The source of fund for Resident Foreign Currency (Domestic) Account can also be such foreign currency which is legally acquired for travel abroad and brought back unspent. However, such amount should be within the overall cap/limit (say USD 2000-50000).

2. Control Foreign Currency Exchange Facilities: Let me narrate my experience from India. I have never been able to buy foreign currency from Government Banks/Public Sector Enterprises Bank/PSU Bank/ Banks owned by Governments in India. I am not saying it is wonderful. Indian practice is too rigid. When it comes to Kazakhstan, I find it too open and liberal.

In India, the private money exchange rate determined by individuals freely will be unfavourable to the public but most of the times, they are the only source of buying forex. If you manage to go to Private Banks, they will sell forex after some inquiries but will make you go through the documentation.

As compared to Indian practice, the practice in Kazakhstan is very smooth and easy. You can go over the Counter of any bank or private money exchange and can easily sell or buy foreign currency in Kazakhstan. I feel there is a need of slight restriction on this practice.

One practice they can bring from India is requirement of having valid Visa before buying Forex and requirement of proof of recent Visa/travel from foreign countries. This will check a lot of forex transactions. I know a country like Nepal, where the forex seller has also to stamp on the last page of passport (Nepali Passport Holder) mentioning the amount of forex bought by him in Nepal. So, Kazakhstan can think of mixed model while buying/selling of forex. At least, it can make holding of Valid Visa mandatory to buy foreign currency with certain exceptions when the buyer is intending to travel to Visa free countries.

3. Prohibition on Loan facility in Foreign Currency: I have read that almost 30% of Kazakh loans are in foreign currency. This is surprising to me as why a Country like Kazakhstan having its own Currency - Kazakh Tenge - needs to make loan facility in foreign currency. The people who have taken loan on USD/foreign currency are going to get suffered by this current devaluation and it may bring some instability in financial market as certain portion of debt may be "bad debts". Therefore, there is a need to put strict guidelines on extending loan facility in foreign currency.

I will draw my example again from India. In India, only those businesses which are engaged in imports-exports of goods and services are allowed to take loan on foreign currency. The bank will extend such loans only after studying the credit rating of those businesses. The credit ratings are obtained from International Credit Rating Agencies. Therefore, in practice only the well established big business houses/corporates can avail the facility of loan in foreign currency in India.

For the common man who wants to buy the flat in Mumbai or Delhi, or even the housing colony developer can not access such loans. Whereas in Kazakhstan, any normal salary earning person can get loan in USD and I have seen even a medium scale businessman getting loan easily in USD/foreign currency. I think Kazakhstan should think of revising its policy.

Kazakhstan must implement above three policies among others for de-dollarisation of Kazakh economy.

Let me know what you think!


  1. to de-dollarize you need a local currency that can be trusted and is profitable to hold , meaning yielding high rates and making such yields accessible to foreign investors. As long as in KSE bonds keep yielding a loughable 8% tenge can only keep going down the drain.

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