Lkhagvasuren Byadran on geopolitics, gold and 100 years of central banking on the steppe

Bank of Mongolia’s governor speaks about monetary and financial reform, embracing AI and fintech, and Mongolia’s new SWF

The Bank of Mongolia is celebrating its centenary this year. It started out as the joint Mongolian-Russian Trade and Industry Bank of Mongolia in June 1924 and, the following year, issued the ‘new’ national currency, the tugrik, which joined the gold standard at a level of one tugrik for $0.518 in 1928. What were the main areas of focus for the central bank in those early days and through the Communist period?

Since ancient times, Mongolia has thrived as a centre of commerce and trade, boasting a rich tradition of currency usage dating back to the Hun Dynasty in the 3rd century AD. Coins were first minted during the reign of Chinggis Khan, with historical evidence indicating the introduction of the world’s first paper money in 1227 under the Mongol Empire.1 Khan’s successors continued this legacy, minting more than 100 types of gold, silver, copper, brass and bronze coins, as well as reprinted paper currency, facilitating trade domestically and internationally. Following the events of the People’s Revolution in 1921, a national bank was established – the Bank of Commerce and Industry (now the Bank of Mongolia) – laying the foundation for the modern financial system in Mongolia. The early years of the Bank of Commerce and Industry were chaotic. Various currencies were in circulation, and there was no centralised authority to oversee lending and settlement activities. At the time, the main goals were to stabilise the national currency, stimulate economic growth, protect people’s savings and facilitate transactions. From 1924 to 1934, significant strides were made in modernising banking practices, introducing the tugrik in 1925 for standardised payments and establishing credit operations. Between 1954 and 1991, Mongolia’s banking sector underwent a significant transformation. The Bank of Commerce and Industry was restructured into the State Bank of the Republic of Mongolia, aligning with the nation’s goal of establishing a unified banking system utilising domestic resources and personnel. Beginning with the capital transfer from the Soviet Union in 1954, the ownership of the Bank of Commerce and Industry was fully transferred to the government of Mongolia. During this socialist period, the People’s Republic of Mongolia implemented a series of five-year plans aimed at fostering agricultural and cultural development, with a total of eight plans approved. Under the oversight of the General Committee of the State Bank, a centralised management system to regulate the state banking system was implemented, in accordance with the principles of a centrally planned economy. Using socialist economic model principles as the foundation for our lending framework, officials directed the allocation and distribution of national economic resources through loans, strategically coordinated within established plans. Industrial sectors had access to additional working capital beyond set limits, conditional upon factors such as production nature, resource availability, raw material supply and withdrawals, facilitated by short-term bank loans. Interest-bearing loans were provided to industrial entities aimed to encourage timely repayment and efficient fund utilisation, thereby enhancing business accounts and optimising working capital usage. As both agricultural and industrial output surged, so did the demand for loans. The expansion of social production broadened the State Bank’s responsibilities and significance, solidifying its pivotal role in the economy. Lkhagvasuren Byadran is governor of the Bank of Mongolia, where he also serves on its Monetary Policy Board and Financial Stability Board. Prior roles include vice-president of the Mongolian Bankers Association and founder/CEO of the Deposit Insurance Corporation of Mongolia. He transitioned to his current position on November 22, 2019, having previously served as deputy governor. Lkhagvasuren has been active in banking sector reform and held roles at the Economic Institute of the Central Planning Committee of Mongolia. He gained a Bachelor of Economics from the National University of Mongolia and a Master of International Affairs from Columbia University, New York.

Mongolia moved towards becoming a democratic, market-based economy in the early 1990s. How did the central bank manage this – at times, rocky – transition?

During Mongolia’s transition to a democratic, market-based economy in the early 1990s, the Mongolbank (the central bank) played a pivotal role in managing the tough transition by undertaking various responsibilities and implementing necessary reforms. To mention a few:  In 1991, the Banking Law of Mongolia was enacted, establishing a two-stage banking system to address the lack of financial resources among the population. The Mongolbank took significant responsibility for developing and implementing monetary policy during the initial phase of the transition. It relied on administrative measures and direct instruments to mitigate challenges, such as hyperinflation and cash shortages. The central bank also phased out direct instruments gradually and adopted a monetary aggregate targeting framework by 1994. Additionally, the abandonment of the fixed exchange rate regime was a historic shift that promoted exports, reduced inefficient imports and improved the balance of payments. Despite facing a significant crisis, with 12 banks going bankrupt between 1995 and 1999, collaborative efforts between the government of Mongolia, the Mongolbank and international organisations helped stabilise the banking sector. Projects aimed at improving the legal framework, enhancing monetary policy effectiveness and reducing government intervention were implemented. It took about a decade for the banking sector to stabilise. This period saw the emergence of domestic capital accumulation and laid the groundwork for the development of large national enterprises, contributing to Mongolia’s transition to a market economy.

You took over as governor in 2019. What were your priorities when you assumed your role?

Over the past five years, Mongolia’s banking sector has undergone a profound transformation, characterised by significant policy reforms aimed at enhancing resilience, stability and transparency while at the same time addressing the challenges posed by the pandemic and geopolitical risks. Stepping into the role of governor during the IMF’s Extended Fund Facility (EFF) programme, I encountered a challenge of dealing with the aftermath of the asset quality review (AQR), the first exercise of its kind in the Mongolian banking institutions. Addressing the capital shortfall determined by the AQR, equivalent to 2% of GDP, urgently recapitalising the banks and enhancing the banks’ credit risk management were the main priorities in meeting the programme targets. In addition, the banking sector has been grappling with long-standing challenges related to high ownership concentration and governance issues. Therefore, my primary policy objectives at that time were focused on the implementation of post-AQR measures pivotal for the successful completion of the EFF, as well as on structural reforms aimed at promoting sound corporate governance, transparency and supervisory practices.

Over the past five years, Mongolia’s banking sector has undergone a profound transformation, characterised by significant policy reforms aimed at enhancing resilience, stability and transparency while at the same time addressing the challenges posed by the pandemic and geopolitical risks

Lkhagvasuren Byadran

First and foremost, the Bank of Mongolia undertook a highly ambitious and comprehensive initiative, the ‘Banking Sector Medium-Term Reform Programme’ in 2020, spanning three years. This programme encompassed core objectives aimed at improving the regulatory framework to reduce banks’ ownership concentration, aligning supervisory practices with international standards and enhancing transparency across the banking sector. These reforms, while challenging, have been implemented with remarkable success and laid the foundation for a more resilient and transparent banking sector. One of the key achievements of the reform was legally mandated initial public offerings (IPOs) undertaken by all systemically important banks (Sibs). In January 2021, parliament approved amendments to the Banking Law, introducing requirements for banks to change ownership to joint stock companies, with a particular focus on Sibs becoming open joint stock companies. As a result, six out of 12 banks in Mongolia, including all five Sibs, successfully reorganised into open joint-stock companies. The IPOs not only laid the ground for effective governance and transparency of banks but also had a significant positive impact on the domestic capital market. Collectively, the banks’ IPOs raised the market capitalisation of the stock market by 2.3 times. It is important to acknowledge that these changes were made amidst challenging economic circumstances and demonstrated significant success. Another significant achievement was the enhancement of Mongolia’s anti-money laundering and combating the financing of terrorism (AML/CFT) framework. The Bank of Mongolia has actively collaborated with government authorities, private sector institutions, and professional associations on AML/CFT measures. As a result, Mongolia was removed from the ‘grey list’ in October 2020, within a record one year – the shortest period compared to other developing countries, particularly [impressive] amidst the pandemic. Recent policy measures have been focused on establishing a sound regulatory framework to attract foreign investment in the banking sector. The Law on Specialized Investment Banking was approved in 2023, allowing foreign banks to operate in Mongolia. These reforms aim to transition Mongolia’s banking sector into a modern, investor-centric one, focusing on fostering investment, deepening financial markets and driving long-term economic growth. In terms of present policy challenges, the deadline for complying with the 20% ownership limit for single shareholders passed at the end of last year. This resulted in most of our banks being unable to meet the requirement due to a variety of reasons, thereby posing a risk to the banking sector. Extending the deadline through amendments to the Banking Law, which required parliamentary approval, is crucial at this moment. If this challenge is successfully addressed, one could conclude the abovementioned mid-term banking sector strategy will have been adopted successfully.  Looking ahead, the Bank of Mongolia is working towards becoming a Bank for International Settlements member to bolster policy-making, financial stability and international cooperation capabilities.

Mongolia is landlocked by two big neighbours, China and Russia, both of whose economies have experienced major shocks in the past five years. What impact did Covid-19 lockdowns, particularly in China, and Russia’s invasion of Ukraine, have for the Mongolian economy? How did the central bank try to manage the fallout?

Landlocked between the two major neighbours, Mongolia faced significant economic challenges, such as soaring inflation, an economic slowdown, tight financial conditions, external imbalances and a sharp depreciation of the exchange rate. These unprecedented difficulties were, in fact, predominantly repercussions from the Covid-19 pandemic and geopolitical tensions, as reflected by prolonged border restrictions, transportation delays and supply-chain disruptions. As tail risks began to materialise, the Bank of Mongolia implemented proactive measures. The bank took monetary policy actions to stimulate economic activity, support targeted businesses and maintain stability in the currency exchange rate. This included raising the policy rate by 700 basis points in 2022 to mitigate the challenges and ensure financial stability. However, since the economic conditions stabilised in 2023, the policy rate was gradually reduced twice by 100bp in 2024. Collaboration with the government led to the implementation of a stimulus package and forbearance measures, supporting the financial system’s health during the pandemic. Repo operation agreements were extended to two years, and the collateral list was expanded to alleviate financial pressures faced by citizens, entrepreneurs and financial institutions. Repo trading sources were provided to enterprises and individuals, aiming to reduce the debt burden of SMEs and non-mining export sectors essential for economic diversification.

Mongolia’s economic growth was 7% in 2023, driven primarily by heightened coal exports and increased activity in mining and related sectors. But the dzud disaster – extreme cold this winter that has resulted in the deaths of millions of livestock – will cause a contraction in the agriculture sector’s growth, posing a downside risk to the overall economic growth, despite the increase in production from the Oyu Tolgoi copper and gold mine. What is your assessment for growth in 2024 and 2025?

As you mentioned, Mongolia’s economy grew by 7% in 2023, surpassing its historical average.  GDP growth, excluding the agriculture sector, is projected to remain robust at around 7% in 2024. Oyu Tolgoi’s copper output will contribute to the mining industry, and the service sectors will benefit from the increase in households’ real income. But, as of the first quarter, we have lost 6.2 million heads of livestock due to adverse weather conditions (dzud), and the livestock sector is facing a difficult situation. The agriculture sector could cause 2–3 percentage points of negative effects on economic growth. We expect that the economic outlook to remain favourable with growth staying at around 6% in 2025 and economic momentum will be maintained in the medium term.

A supplementary budget for 2023, passed in June 2023, introduced “large and permanent increases in wages, benefits and pensions”, according to the IMF. What impact is this having for managing inflation within your 6% +/- 2 percentage points band?

Starting from the beginning of 2023, inflation has gradually decelerated due to the easing of supply-side pressures and lower transportation costs of imported goods. Favourable changes have also occurred in the external economic environment, with increasing export volumes and prices. These factors have created opportunities to ease the monetary policy stance and reduce the policy rate. However, fiscal expenditures, particularly on salaries, pensions and allowances, have been increasing demand-side inflationary pressures. Given these circumstances, we postponed the decision to reduce the policy rate for two quarters. A tight monetary policy stance has persisted throughout 2023, contributing to the mitigation of the effects of demand-side inflationary pressures. Inflation reached 6.4% in April 2024, and the impact of fiscal expenditures has been lower than expected. Considering this, we have decided to reduce the policy rate to ease financing conditions and support the economy.

Many developing Asian economies strive to ‘control’ prices, financial stability and the exchange rate using a ‘policy mix’, while also promoting fiscal and growth policies of the government. What is your view on this?

According to the Law on the Central Bank, the main objective of the Bank of Mongolia is to stabilise the tugrik. By stabilising inflation at a low rate, the bank intends to safeguard the real income and wealth of households, facilitate an environment conducive to banking and financial system stability, and promote investments and sustainable economic growth in the long run. Mongolia’s economy is heavily dependent on commodity exports and it is landlocked. The extractive industries rely extensively on foreign direct investments, while infrastructure financing is predominantly sourced from sovereign borrowing. As a result, the fluctuations in the balance of payments are largely influenced by commodity prices and the phases of infrastructure projects. The Bank of Mongolia has been working to ensure the tugrik’s exchange rate flexibility is consistent with macroeconomic fundamentals. Therefore, the Bank of Mongolia has been intervening in the domestic FX market to mitigate the exchange rate fluctuations caused by the short-term demand and supply gap. Economic activity was stronger than expected in 2022 and exceeded the pre-pandemic period, driving up the demand for foreign currency and putting downward pressure on the tugrik. At the end of 2022, the tugrik’s reference rate against the US dollar reached 3,444.60, down by 20.89% from the beginning of the year. Moreover, economic activity exceeded expectations in 2023. With the cessation of China’s ‘zero-Covid’ policy and the rise in coal export income, Mongolia experienced a significant increase in foreign currency inflows and a decrease in foreign exchange rate fluctuations. At the end of 2023, the tugrik’s reference rate against the dollar reached 3,410.69, appreciating by 1.06% from beginning of the year.

What are the main achievements of the central bank in the past five years?

In terms of payment systems and its infrastructure developments, the Bank of Mongolia made significant advances in building a cashless society. [It undertook] EMV chip technology migration of the national payments brand ‘₮ card’ in 2019, which accounts for about 60% of the payment card market. Chip technology has improved privacy and security, reduced the risk of duplication of the card information and was an important step in the introduction of advanced mobile payment solutions. We launched an automated clearing house system with real-time credit and batch payments capabilities in 2019. [It acts as a] corporate gateway for businesses to make payments faster and safer, [and has] a collateral fund mechanism to mitigate settlement risk. Moreover, the system enables local banks and financial institutions to implement the International Bank Account Number standard. [We] introduced the new Payment Card System for interbank card switching and clearing and implemented the Mobile Payment Tokenization System in 2021. The tokenisation system allows payment card information to become usable in mobile wallets, such that Mongolian users can use their national T-card recorded on their mobile phone to make instantaneous payments for eCommerce or government services. [We] launched the Unified Securities Depository and Central Bank Trading System (CSD) on June 16, 2023. It enables all types of closed and open financial instruments traded on primary and secondary markets in the country. The system meets international standards. We also successfully completed the renovation of the main data centre of the NETC in Ulaanbaatar and the disaster recovery site in Darkhan-Uul province, in accordance with the Tier II standard of the Uptime Institute in 2020.

According to the Law on the Central Bank, the main objective of the Bank of Mongolia is to stabilise the tugrik

Lkhagvasuren Byadran

Since 2015, the World Bank cooperated with the Bank of Mongolia by providing technical assistance in supporting the development of Mongolia’s payment system and bringing it into line with international standards. Within this scope, the National Payment System (NPS) Strategy for 2022–26 was successfully drafted and approved in 2022 to define a roadmap, strengthen the regulatory framework, and conform to international standards and best practices for the payment system. Parliament approved the revised version of the Law on Licensing on June 17, 2022, that became effective at the start of 2023. To ensure compliance with this law, the Bank of Mongolia worked towards approving the draft of the amendments to Law on National Payment System. The Regulation for Regulatory Sandbox was approved in 2021 by the bank jointly with the minister of finance, the chairman of the Financial Regulatory Commission, and the CEO of the Deposit Insurance Corporation. The purpose of this regulation is to support fintech startups to test their products and services in a safe environment for a defined period. In line with this, the Bank of Mongolia established an Innovation Office in 2021, which provides an environment for fintechs to introduce innovative products and services to the public, exchange views on the legal environment and infrastructure solutions and, if necessary, test software and hardware. Moreover, the ‘QR code message structure and instructions’ was approved and effective from May 2022. According to this standard, no fees are charged from customers for their purchase transactions using a QR code. As a result, new, high-tech payment channels that satisfy international standards enable payments to be made in an easier, faster, and more secure way. To keep up with the fast pace of technological innovation and introduction of new technology-based products, services and business models of financial services markets, we have revised the relevant rules, regulations, technical standards in compliance with international standards.

What efforts are you taking to shore up FX reserves, which currently stand at just over $5 billion? What is the optimal level of net FX reserves for Mongolia and where should they be invested? What has happened to your ruble holdings, given Western sanctions?

Despite the challenges posed by the pandemic-induced slowdown, the Mongolian economy has demonstrated resilience and is expected to achieve higher growth this year.  As a result of the combination of multilateral, bilateral and domestic policy measures, our balance of payments has been in surplus for the past year, leading to FX reserves reaching a historic high of $5.25 billion by the end of the first quarter of 2024. This level of reserves provides us with a comfortable buffer, covering at least seven months of imports, thereby enhancing our resilience to external shocks. We prioritise three core principles when managing FX reserves: liquidity, safety and return, in that order. As part of our reserve management strategy, we purchased 20–24 tonnes of domestically mined gold annually. In the first quarter of this year, we have already purchased 4.3 tonnes of precious metals from the domestic market, which is a significant increase of 24% compared with the same period last year. We have successfully extended the bilateral currency swap agreement with the People’s Bank of China for another three years. This agreement has played an important role in bolstering economic and financial cooperation between our two central banks, providing essential support in times of need. To safeguard the integrity of the reserves and mitigate potential risk, we maintain strict criteria for investment and only engage with credible counterparts. Additionally, we uphold a diversified investment portfolio. It is important to note that we do not hold the ruble as a reserve currency. Geopolitical tensions have complicated matters, impacting our ability to settle essential import payments, particularly for petrol, which we rely on heavily from neighbouring countries. Despite these challenges, we remain committed to navigating these complexities and safeguarding the interests of our economy and citizens.

You mentioned Bank of Mongolia has purchased around 4.3 tonnes of gold this year. How do you buy, store and monetise gold? How are efforts to ‘green’ artisanal gold purchases and work with internationally licensed entities progressing?

Gold has been an essential component of the central bank’s reserves for centuries. The demand from the central bank has increased, reflecting the increasingly complex global landscape. As mentioned earlier, we purchase mined gold and our purchases are made through local commercial banks or directly from artisanal and small-scale gold miners and mining companies.

The Bank of Mongolia is committed to promoting responsible gold-mining practices towards the highest international standards

Lkhagvasuren Byadran

The Bank of Mongolia is committed to promoting responsible gold-mining practices towards the highest international standards and has been cooperating closely with local commercial banks, government agencies and international organisations. Notably, we have established an assay laboratory [which can assess gold purity] in regions where artisanal and small-scale gold-mining (ASGM) operate. This ensures fair pricing based on the London Bullion Market Association’s pm-close for responsible gold-mining companies and ASGM actors. Regarding storage, we employ a dual strategy, utilising both domestic and overseas facilities. We exclusively engage with internationally licensed entities for logistics, storage, refining and transactions, including commercial banks involved in gold trading. We adhere strictly to working with LBMA-listed good delivery refineries, which conduct comprehensive due diligence to ensure compliance with responsible mining standards, including KYC and other regulatory requirements. In a significant step forward, the Bank of Mongolia recently joined forces with the World Gold Council and seven other central banks to become a member of a trusted circle, committed to upholding the highest international standards in the gold supply chain. This initiative’s recognition as a ‘Partner initiative’ by Central Banking journal underscores our dedication to fostering transparency, sustainability and integrity within the gold industry. Through these concerted efforts, the Bank of Mongolia is safeguarding the integrity of our gold reserves and contributing to global efforts to promote responsible mining practices and sustainable economic development.

On April 19, the Mongolian parliament passed sovereign wealth fund legislation, effectively introducing three major funds: the National Development Fund; Funds for Future Generations; and the National Savings Fund. What is the plan for these funds?

Under the Sovereign Wealth Fund Law, parliament and the government are responsible for the basic activities of the fund, such as registration and spending. The revenue of the fund will be concentrated in the treasury account at the Bank of Mongolia. The central bank will manage the assets of the Future Generations Fund based on the contract between the government and the Bank of Mongolia. In this context, the Bank of Mongolia will pay attention to the reliable and profitable management of the fund’s assets. Other than these obligations, the Bank of Mongolia has no other responsibility or control over the sovereign wealth fund.

What governance protocols will be put in place to protect against potential corrupt practices, as we saw in Malaysia with 1MDB?

The management and account information of the fund must also be made publicly available under the legal framework. This has led to the creation of a system that allows the public to keep an eye on how the fund’s assets are managed and spent. The National Audit Office and foreign auditing firms also keep an eye on the Bank of Mongolia’s operations. We are firmly convinced that the management of the fund will be conducted with complete transparency and security.

The Asian Development Bank has said that the current account surplus in 2023 “is likely to return to deficit in both 2024 and 2025 as imports are expected to increase following recent buoyant economic activity and strong growth”. So, how will it be possible to bolster reserves and develop the sovereign wealth funds without damaging the country’s fiscal position?

We have an optimistic outlook for both coal export volumes and portfolio investment flows. Exports and production from the Oyu Tolgoi copper and gold mine will significantly increase starting next year. The outlook will positively affect the balance of payments performance. The flexible exchange rate also helps to offset the effects of external shocks on the economy in the event of a current account deficit. While allowing flexibility, we keep a close eye on market circumstances and consider the possibility that it could have a negative impact on financial stability. Furthermore, macro-prudential measures are put in place to encourage a rise in foreign exchange inflows to Mongolia.

What type of foreign investment is Mongolia trying to attract into the country? Is it mainly to attract investment for large-scale projects and the banking sector?

The Mongolian banking sector is at the forefront of the efforts to attract both large institutional investors and individual investors. Recent significant adjustments to the legislative framework, including the restructuring of our banks as joint-stock companies, show a shift towards greater transparency and investor participation. The move to reduce the dominance of large bank shareholders, obliging them to divest excess ownership over what is allowed in line with the law, has opened opportunities for a more inclusive and diverse investor base. One significant development in 2023 was the approval of the law on specialised investment banks, offering a new avenue for foreign investors and financial institutions to engage in projects that are large both in scope and return potential. We hope this move not only serves to diversify investment opportunities, but also strengthens Mongolia’s financial ecosystem. Moreover, our latest decision to allow for the establishment of foreign bank branches in Mongolia further demonstrates our commitment to fostering a conducive environment for foreign banks and financial organisations. These measures pave the way for enhanced collaboration, knowledge-sharing, and investment inflows into the financial sector. Going forward, our intention is to set the stage for a new era of foreign investment opportunities, sustainable growth in the financial sector and economic diversification, as we continue to engage with international investors and enhance our regulatory framework.

Commercial banks were permitted in March to restructure and extend the loan maturity term for herders experiencing difficulties in their loan repayments. How temporary are these measures?

Due to severe weather conditions in Mongolia, about 6.2 million head of livestock have succumbed to the severity of this winter. Consequently, herders have struggled to meet their loan repayment deadlines, causing an influx of requests to restructure the loan terms and conditions from the obligors to banks. To support herders during this challenging time, the Bank of Mongolia has implemented temporary forbearance policies allowing banks to restructure and extend the loan maturity term for up to a year for herders facing difficulties in their loan repayments. These measures will remain in effect until the end of this year, with banks accepting loan repayment postponement requests from herders until December 31, 2024. These measures, coupled with government-sanctioned relief measures targeted towards herders in the affected areas, should lead to much favourable credit conditions by improving the creditworthiness of the borrowers.

Your big data initiatives with banks have resulted in 61 template-based reports covering more than 200 sheets being consolidated into a unified data model. How has this helped the Bank of Mongolia to better monitor banks?

The implementation of our big data initiatives has revolutionised the Bank of Mongolia’s monitoring capabilities by consolidating multiple reports into a unified data model and significantly reduced the time lag in official statistics from an average of 17 days to just one day. This transformation has enabled us to better monitor banks in several ways. First, it improved data accessibility and timeliness. With access to near real-time data on banking activities and financial indicators, we can now promptly identify emerging risks and vulnerabilities. Second, the consolidation of reports and reduction in reporting time have provided us with a comprehensive view of banking activities, facilitating the early detection of trends, anomalies and potential risks. Third, the streamlined reporting process and improved data accessibility enable more efficient operations and decision-making within the Bank of Mongolia. By leveraging insights derived from the new system, we can make timely and informed decisions to address emerging challenges and capitalise on opportunities. Fourth, enhanced monitoring capabilities contribute to greater transparency, risk management and regulatory compliance throughout the banking sector. By ensuring timely and accurate reporting, we uphold the integrity of the financial system and promote trust among stakeholders.

Can you point to any interventions that were timelier due to the new approaches?

 While specific interventions have not yet been made, the groundwork has been laid for more timely interventions in the future. As we continue to refine and optimise our systems, we anticipate that our enhanced monitoring capabilities will enable us to respond proactively to emerging risks and opportunities, driving greater transparency, risk management and regulatory compliance across the banking sector. Despite challenges related to data scope and security, we remain committed to transparency and collaboration, engaging stakeholders to address concerns and further refine our platform.

The Bank of Mongolia is now working to develop new suptech tools in three areas: creating new (early-warning) indicators and improving nowcasting models; conducting detailed stress tests on household debt in the banking sector; and creating a fraud-detection alert system. How is this work progressing?

One of the pivotal aspects of our suptech initiatives involves conducting comprehensive stress tests on household debt within the banking sector. This meticulous analysis extends to both the household and corporate sectors, with a novel incorporation of climate change stress-testing models that aim to enhance its resilience to diverse economic scenarios and external shocks. Recognising the data-intensive nature of these initiatives, we need to acknowledge the importance of robust data collection mechanisms for both historical and sector-specific insights, so that our finalised suptech tools can streamline the workload of staff, enabling them to focus on strategic forecasting, modelling and implementing corrective measures effectively. Integration of big data systems in banking facilitates the development of highly accurate early-warning indicators and refined nowcasting models. These models utilise near real-time data and advanced data analytics, including machine learning algorithms, to predict economic trends and identify potential risks in the banking sector more precisely. With access to comprehensive datasets on consumer credit, debt levels and macroeconomic factors, the bank can perform detailed household stress tests. The strategic deployment of the big data system empowers the Bank of Mongolia to advance its suptech capabilities across multiple regulatory areas and strengthen the resilience of Mongolia’s financial system.

What efforts is Bank of Mongolia undertaking to tackle fraud and the carbon footprint of your banknote and currency operations?

The Bank of Mongolia is actively addressing fraud and reducing the carbon footprint of its banknote and currency operations through several initiatives. For instance, we continuously study new methods to minimise the carbon impact during the destruction of cotton-based currency and are evaluating options for recycling shredded banknote material. Efforts are being made to explore greener recycling methods and composting of banknotes, leveraging research that suggests cotton-based currency can be transformed into compost. Since 2017, the Bank of Mongolia has intensified efforts to upgrade the security features of the national currency. These enhancements include elements made with modern advanced technology, bringing the currency’s security standards equivalent to those of banknotes in developed countries. Various security features have been introduced in different denominations of tugrik banknotes. Examples include rainbow-looking ink elements, 3D movement, diagonal line elements for people with visual impairments, micro-optical features, motion surfaces and strips containing microtexts and traditional patterns. The implementation of upgraded security features has resulted in a significant reduction in counterfeit currency cases in recent years. These advancements enhance the integrity of the currency and instils confidence in its authenticity among the public and businesses alike.

Notes

¹. Others claim the first known banknotes were first developed in China during the Tang and Song dynasties.

Source: The Central Banking magazine