Kazakhstan undermines dollar positions

Victoria Panfilova, an observer of Nezavisimaya Gazeta. Exclusively for Vestnik Kavkaza

Kazakhstan has approved a plan on dedollarization of the national economy. This was stated by the head of the National Bank of Kazakhstan, Kairat Kelimbetov, on Wednesday. Payments in dollars may be substituted with yuan payments.

It is not about prohibiting the dollar in Kazakhstan, as the population of the republic generally keeps money in dollars. However, the country has chosen a course toward dedollarization. In early February President Nursultan Nazarbayev ordered the National Bank to “take measures on providing additional volumes of tenge liquidity, to intensify work on dedollarization of the economy.” 

“I have already addressed the head of the national fund of Kazakhstan, Samruk-Kazyn, our national companies, investors who keep their money in dollars just in case. We should all shift to the tenge,” Nazarbayev said. 

This is one of the initiatives of the President on saving the Kazakhstan economy during the crisis; the country intends to overcome it in a few years.

“Dedollarization doesn’t mean we want to eliminate or forbid dollars. We think that the national currency should take a decent place as the unit of account,” Kelimbetov said. He stated that the National Bank and the government have developed a special plan on reducing the dollarization of the economy for 2015-2016, according to the President’s order. Kelimbetov says this is a medium-term task. Implementation of the plan begins next week.

Dedollarization is an increase of the independence of an economy from the USD, in which the dollar is not the national currency. The dollar is substituted by a national currency or another foreign currency. Dedollarization is a process of depriving the USD of its function as a parallel currency. Dedollarization is a selling-off of foreign-exchange holdings and a growth in demand for a national currency.

The dedollarization plan is based on three main directions.

The first direction is providing macroeconomic stability by taking steps to decrease annual inflation. The National Bank expects that inflation will fall to 3-4% by 2020.

The second direction is development of electronic payments and reduction of the shadow turnover.

The third direction is improvement of the tenge's priority. According to Kelimbetov, a series of measures will be implemented: a prohibition on indicating prices for goods, services or work in foreign currency; launching regulations fir making payments in cash between individuals in case of deals on movable and immovable assets; an increase in deposit guarantees from 5 million tenge to 10 million tenge; a decrease in the FX savings remuneration rate to 3%. Kelimbetov says that the changes will be added to legislation steadily.

Will Astana be able to reject dollar payments completely? Elena Kuznima, the head of the sector for economic development of the post-Soviet countries of the RAS Institute of Economics, told Vestnik Kavkaza that for Kazakhstan substitution of the dollar with other currencies, primarily the yuan, was possible. A set of agreements with China are signed in yuans or require yuan-tenge swaps; moreover, the national banks of the two countries have an agreement on the issue.

“Another process which could be initiated by the Kazakhstan authorities will be directed at depriving the dollar of its function as a parallel currency. Moreover, the only official unit of accounts in the country is the tenge. It will damage the population seriously. According to Kazakh economists, in 2012 the FX deposits of the population were 38%; today they are 45%,” Kuzmina said.

Speaking about foreign trade, Kazakhstan primarily exports oil and gas, which are tied to the dollar on the international market. Probably, China could shift to national currencies in importing them. At the same time, Kazakhstan exports oil not only to China, but also to Europe, Iran, Russia, and it has purchased the majority of the equipment in the West.

A shift to euro payments cannot be ruled out in this case. According to Natalya Samoylova, the head of the analytical department of the investment company of Golden Hills-Capital AM, a decrease in the dollar payments in the world economy could undermine the positions of the USD as a reserve currency. “Gradually, the dollar will be devaluated, damaging consumers, as a growth in inflation will be inevitable,” the analyst explained. Samoylova thinks that rejection of the dollar will be beneficial for other countries, even though a growing demand for a united currency may lead to its strengthening, and this will negatively influence the exporting countries of the euro zone. A shift to euro payments won’t play a significant role for the internal market of Kazakhstan.

Elena Kuzmina believes that the Kazakhstan authorities are able to provide the dedollarization policy, as it will encourage strengthening of the national economy, and China and the EaEU (if the Union is going to settle tasks which are declared by the EaEU Agreements) will help it. However, it cannot be done at once or quickly, as the dollar is still the only international currency. “Dedollarization is gradually becoming a world trend. It is not an original initiative by Kazakhstan or any other country which provides dedollarization,” Kuzmina said.

Kazakhstan MPs have no solid view on dedollarization. Some of them are sure that Kazakhstan needs to reject dollar and euro payments. MPs counted that one $100 bill costs only 14 cents. This means the countries which pay in dollars are working on the economy of one state only – the USA. Other deputies don’t want to hurry up and repeat Russia's example, where the situation with the ruble exchange rate is critical. They speak about their own national interests rather than tge economic problems of neighbors.

Azat Perushayev, an MP of the Kazakhstan parliament, thinks that in long-term prospects, the decreasing role of the dollar in the country’s life should be considered. However, it is too risky to force events without considering the drawbacks and only due to the fact that the Russian ruble is weakening.