Mongolia - Banking and securities

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Before 1924, Mongolia lacked its own banks and currency. Mongolians bartered, using such commodities as livestock, tea, and salt for exchange, or such foreign currencies as the US dollar, the Russian ruble, the British pound, and the Chinese Mexican dollar in commerce. Chinese and Russian banks offered credit, as did monasteries and private moneylenders. The government began to transform this chaotic monetary situation with a series of reforms, starting with the establishment of Mongolbank, or the Mongolian Trade-Industrial Bank, in June 1924. Mongolbank was founded as a Mongolian-Soviet joint-stock company. In February 1925, the tugrik was made the official national currency, and it was slowly introduced into circulation over the next three years. In April 1928, all other currencies were withdrawn from circulation. In 1929, the government drove private moneylenders out of business by establishing a monopoly on foreign trade and outlawing private lending.

In April 1954, the Soviet Union handed over its shares in Mongolbank, which was renamed the State Bank of the Mongolian People's Republic, which remains the official bank of Mongolia. However, recent economic reforms have allowed the formation of a commercial banking sector. The economic reforms were brought about by the collapse of the Soviet Union in the early 1990s.

Mongolia has a two-tier banking system where control of the money supply is invested in the central bank. The Bank of Mongolia has established lending rules the commercial banks must follow. Also, reserve requirements are set by the national bank. In 1991, commercial functions were separated from the Mongol Bank, and two commercial banks were created; by the late 1990s there were 18. On advice from the Asian Development Bank, the government closed a number of banks in 1999 and 2000, leaving 12 in operation in an effort to restructure the two-tier system. In 2000, the World Bank gave Mongolia a loan earmarked for restructuring of its financial systems. Also in that year, foreign exchange reserves reached $123 million. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $142.2 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $301.6 million. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 8.6%.

The Mongolian Securities Exchange opened in August 1995. About 60,000 individuals have opened accounts on the stock market. By 1996, more than 7.8 million shares from 400 companies had been traded and 28,000 contracts concluded; average daily trade volume is 60,000-80,000 shares.

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