Will Kazakhstan return the fixed dollar exchange rate?

Tengrinews.kz - The Chairman of the National Bank of Kazakhstan Timur Suleimenov answered the question of whether Kazakhstan will return the fixed dollar exchange rate.
During a Senate session, deputies asked the head of the National Bank what policy the bank should follow regarding the dollar exchange rate. Since, as the senators emphasized, "the dollar exchange rate is one of the main macro-indicators of the economy of Kazakhstan and a socially sensitive indicator."

"As for the exchange rate, I would like to remind you that the fixed rate that existed until 2015, unfortunately, cannot be implemented under the conditions of our economic model. Due to the well-known dependence of our economy on oil and its price fluctuations, imbalances accumulate, which subsequently lead to sharp administrative devaluations. We observed this in 2014 and 2015 when the accumulated imbalances became so significant that the state first spent more than 30 billion in reserves trying to protect the fixed rate, and then finally admitted that it no longer corresponded to either macroeconomic or market parameters. As a result, devaluation occurred," Suleimenov commented.

Thus, according to the head of the National Bank, a fixed exchange rate cannot be implemented in the current conditions of a market economy.

"A fixed exchange rate cannot be implemented: it is a one-way street leading to mandatory abrupt devaluations. Therefore, we do not support the discussions on this topic that are currently occurring in the expert community. (...) As for the reasons why a fixed exchange rate is dangerous: firstly, it promotes dollarization. Why keep savings in a weaker currency if you can use a freely convertible reserve currency? This leads to the displacement of the national currency from deposits, loans and the economy as a whole. As a result, foreign currency penetrates our financial system, and we begin to focus on it. A floating exchange rate, despite the weakening observed recently, serves as an automatic stabilizer. It reflects the state of the economy: if the economy grows, the exchange rate strengthens; if the balance of payments (current or projected) weakens, the exchange rate weakens along with it. This happens smoothly and in accordance with market laws," Timur Suleimenov summarized.

In turn, Senate Speaker Maulen Ashimbayev added that the free exchange rate of our currency is a conscious choice, since "a rigid peg to any foreign currency, in particular to the dollar, is a dead end."

"However, it must be acknowledged that the exchange rate issue is extremely sensitive for Kazakhstan. Perhaps, in some countries that do not depend heavily on imports - neither on processed products, nor on equipment, nor on food products - exchange rate fluctuations and weakening of the national currency do not have such a significant impact on the general well-being of the population. But in our case, the situation is different. People buy food, businesses buy equipment, and so on. Thus, for Kazakhstan, the exchange rate issue is not only an abstract category but also a practically significant factor influencing the general economic situation in the country. On the one hand, the national currency exchange rate has a direct impact on the standard of living and the economy. On the other hand, the growth of the exchange rate (weakening of the tenge) obviously becomes an additional factor of inflation within the country due to the rise in the price of imported goods. This impact is absolutely obvious," Ashimbayev added.

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