Volatility of Weekend currency rates
It seems that a lunatic paradigm was adopted for the management of currency exchange rates, which results in the volatility of USD against MNT rates during weekends.
Last weekend the value of the USD against MNT increased by 20 MNT.
At the end of last Friday, the rate of the USD against MNT at Mongolbank (Central Bank of Mongolia) was 1,700 MNT, but it reached around 1,721 at private currency exchanges the next day.
Although USD against MNT rates have been volatile since mid-June, it settled at a stable rate below 1,700 MNT last month. But once again, USD rates increased to more than 1,700 MNT this month.
USD rates against MNT rose suddenly during the first weekend of September, reaching over 1,795 MNT. However, it sank slowly back to around 1,610 MNT by September 20.
Analysts speculated that USD rates would drop gradually to 1,500 MNT, but it hasn’t dropped below 1,700 MNT since summer. The increase of USD rates did not concern the public as the fluctuation was relatively slow compared to the previous one.
Although, the fluctuation of currency rates has been slow, it still presents a threat to the economy. Mongolbank, which maintains the official exchange rates, deemed it is possible to keep the USD rate at 1,700 MNT.
In other words, it is unlikely to maintain USD rates below 1,700 MNT. Mongolbank organizes foreign currency auctions twice a week to supply USD and CNY to commercial banks operating in Mongolia. The regular foreign currency auction is closed to commercial banks only.
Foreign currency exchanges and private centers, including currency traders at Naiman Sharga, do not receive their supply of foreign currency such as, CNY and USD from Mongolbank. Experts explained that this is the reason why currency rates of private foreign currency exchange centers are fluctuating all the time.
There is no special organization or authority that controls and supervises currency rates of private currency exchanges. Even though the Financial Regulatory Committee is supposed to be in charge of monitoring the exchange rates set by all currency traders, it is difficult to obtain up to date information about the rates they buy foreign currencies at, and what kind of margin of profit they make off of currency trading. The currency rates of such traders are unstable most of the time.
Last weekend, the buy and sell rates of USD by currency exchange centers in Naiman Sharga had a margin of 2 to 3 MNT, but compared to Mongolbank’s rates, it charged 10 to 20 MNT more.
When asked about why USD rates reached over 1,720 MNT when Mongolbank closed the official USD rate at 1,700 MNT, a currency trader at Naiman Sharga Center responded, “It is obvious that USD rates will reach over 1,720 MNT when the official rate is settled at 1,700 MNT. Compared to week days, currency rates fluctuate more during weekends. An increase by 20 MNT is not a sudden incident.”
The paradigm is to decide who to blame for the sudden volatility, but the strange thing is that currency rates only increase substantially during weekends.
The commercial banks close at 5 p.m. on Saturdays, and most do not operate on Sundays. During this brief opportunity, perhaps private currency traders are manipulating currency rates to their advantage.
Last Saturday, Golomt, Khaan and Trade Development Banks bought USD at the rate of 1,692 MNT, and sold them for 1,715 MNT, while Naiman Sharga traders bought USD for 1,714 MNT and sold them at the rate of 1,720 MNT.
According to currency exchange traders, the depreciation of MNT against USD will increase more in the future. They added that current rates will be stable until next year or Tsagaan Sar (Lunar new year), but that during holidays, USD against MNT rate might reach 1,800 MNT, as USD supply is twice as less than what it was in 2012.
During the New Year and Tsagaan Sar, USD demand increases as foreign trade increases. In previous years, USD demands increased substantially during the New Year and Tsagaan Sar holidays, but rates never reached over 1,700 MNT.
The increase of USD demand directly influences the livelihoods of the people, because the increase of foreign currency rates affects the inflation rate and the increase of commodity prices. The price of a food commodity like, rice almost reached 2,500 MNT per kg last week. The cost of one kg of rice was 1,850 MNT during the start of last week, but at the end of the week, it rose to 2,200 MNT.
The National Statistical Office of Mongolia has reported that 60 percent of imported product prices depend on USD rates. Perhaps inflation rates are closely linked to the currency exchange rates set by private currency traders. The time has come to pay more attention to and put controls on fluctuating currency exchange rates of non-bank financial organizations and private currency traders.
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