The National Bank of Kyrgyzstan responded to proposals from deputies of the Parliament on the use of gold and foreign exchange reserves to repay external debt of the country and finance targeted programs of the Cabinet of Ministers.
The National Bank recalled that the international gold and foreign exchange reserves of any country are an essential element of national security and a guarantor of the macroeconomic stability of that country. Having a sufficient reserve allows to prevent destabilization in the economy and resist external shocks of various types.
According to the constitutional Law on the National Bank, the country’s international reserves are owned by the National Bank of the Kyrgyz Republic and are used primarily for:
- Ensuring price stability;
- Maintaining the purchasing power of the national currency — the Kyrgyz som;
- Ensuring financial stability in the country.
In addition, international gold and foreign exchange reserves are used to timely fulfill the obligations of the Cabinet of Ministers in foreign currency.
Misuse of gold and foreign exchange reserves carries enormous risks for the entire state and people.
National Bank
One of the most significant risks of misuse of the country’s international reserves is the loss of control over maintaining stability in the foreign exchange market, which will subsequently lead to an uncontrolled inflation growth.
«If the National Bank does not have enough resources to respond in a timely manner to external economic shocks or attempts to speculate in the foreign exchange market, then the volatility of the exchange rate may get out of control,» the bank clarified.
Given the openness of the Kyrgyz economy, the development of exchange rate volatility will affect all aspects of the economy:
- There will be an increase in the price level for all types of goods and services, which will primarily affect the most vulnerable segments of the population;
- Purchasing power of the Kyrgyz som will decrease;
- Servicing of the public external debt will increase, which will limit the budget’s ability to increase social payments to compensate for rising consumer prices;
- Other negative consequences of rising inflation and depreciation of the Kyrgyz som will intensify, up to an increase in social and political tension.
To prevent such catastrophic consequences, the National Bank is legislatively endowed with operational independence in conducting of monetary policy, including the management of international reserves. This makes it possible to implement a policy to minimize risks depending on the degree of influence of possible shocks in the economy. The National Bank independently forms, owns and manages all international reserves, taking into account liquidity priorities and ensuring their safety. To ensure the effective achievement of goals, the National Bank is prohibited from providing loans and guarantees to the Cabinet of Ministers, including to finance the republican budget deficit.
«Proposals voiced in the Parliament on the use of gold and foreign exchange reserves to pay off external debt and other current goals of budget policy, which are not the purpose of the National Bank, carry enormous risks and threats to price and macroeconomic stability in the country and directly contradict the norms of the constitutional Law on the National Bank,» the National Bank of the Kyrgyz Republic stressed.
The central bank also reported that it purchased all of its gold on the domestic market as part of the priority right to purchase refined precious metals. Thus, the Cabinet of Ministers, through its own gold mining enterprises, has already received the world value of the gold available to the National Bank. The National Bank’s gold does not belong to the Cabinet of Ministers, but belongs to the National Bank. The National Bank of the Kyrgyz Republic is not responsible for the obligations of the Cabinet of Ministers. This is one of the foundations of macroeconomic and financial stability in the country.
«The National Bank serves the interests of the whole society, not just part of it. At the same time, the interests of parts of society are different: someone wants free financing for their personal and group goals through uncontrolled printing of money, someone wants to gain access to the country’s hard-earned reserves. The result of such crude and irresponsible intervention is ultimately the same: macroeconomic stability will be under threat, inflation will accelerate and remain at high levels, the national currency will depreciate, a significant depletion of reserves will occur, servicing external debts for the budget will be extremely difficult, and instead of increasing incomes of the population, the government will be forced to direct money to service more expensive external debt.
Thus, all these momentary initiatives to use gold from the international reserves of the National Bank to pay off external debt and for other current purposes will lead through the lack of reserves to economic instability and high inflation to the impoverishment of the population and a threat to the existence of our state,» the National Bank of the Kyrgyz Republic concluded.
