For a period after national independence, Kazakhstan chose to rely upon the Russian ruble as its currency. None of the successor states of the USSR was in a position at independence to rapidly introduce its own currency, yet none of the countries wanted to be dependent upon monetary decisions taken by Russian financial authorities. Each of the states considered the idea of introducing
|Exchange rates: Kazakhstan|
|tenges per US$1|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
separate currencies during the first months of independence. Estonia introduced the first post-Soviet currency, the Kroon, in June 1992. Throughout 1992 most of the states, however, stayed in the ruble zone—those countries that used Russia's currency. Russia announced that it would make the ruble a fully convertible currency in the summer of 1992. After the ruble floated on the international market as a tradable currency, it immediately plunged in value, falling from 130 to over 450 rubles to the U.S. dollar. The fall of the ruble motivated the movement of huge amounts of old rubles to post-Soviet countries, particularly Kazakhstan where the ruble was still the only legal currency. As a result, the Kazakh money supply quadrupled in just a few months. To insulate itself from such disruptions, Kazakhstan introduced a new national currency, the tenge, in November 1993.
The purpose of a national currency is to allow the central economic planners and bank managers a measure of control over the economic activity of the country and to provide a medium of exchange to promote domestic commerce and foreign trade. To be an effective medium for commerce, the currency must be tradable so that buyers and sellers can exchange their goods and services with knowledge that the currency is a reliable medium for exchanging things of value. The marketability of the currency depends upon a system that allows purchasers of the currency to buy it and sell it in accordance with their currency needs. This, in turn, requires that the banking system is arranged in such a way that banks may settle their accounts among themselves and foreign banks on a regular basis, moving the currency of the country and of other countries in response to the demands of the currency users. The Kazakhstan government has taken key steps to assure that the tenge is a tradable currency with adequate provisions for clearing and settlements among banking institutions.
The Kazakhstan National Bank, the government agency responsible for maintaining the stability of the currency, has sought over the past years to maintain a stable but flexible exchange rate for the tenge. The value of the tenge fluctuated in a narrow band at about T138-143 per U.S. dollar in late 1999 and early 2000, settling at about T142.5 per U.S. dollar in late 2000. Given the strong growth in deposits and the confidence of market participants in a stable exchange rate, interest rates declined. Rates on 3-month treasury bills declined by about one-half in late 2000, reaching about 8 percent per annum.
Kazakhstan's central bank has sought to avoid many of the problems associated with the "boom and bust" syndrome of economies that are dependent upon the sale of natural resources, minerals, and other primary commodities. During 2000 the government recorded a substantial surplus. Exports grew strongly, resulting in a current account surplus as a percentage of the GDP. During 2000 the Kazakh government borrowed money on the international market by issuing Eurobonds of US$350 million. These bonds are basically treasury bills that the government issues with a promise to pay at a later date. They are called "Eurobonds" simply because they can also be purchased by investors in European markets. In May 2000 the Central Bank (the National Bank of Kazakhstan, or NBK) repaid outstanding obligations of roughly US$385 million to the International Monetary Fund, substantially reducing the public external debt .