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Mongolia’s Central Bank Plans to Double Currency Swap With China

Mongolia’s central bank said it intends to extend a bilateral local currency-swap line with the People’s Bank of China for three years and double its size to 20 billion yuan.

“This will clearly increase confidence in the foreign-exchange market and strengthen the off-balance” reserves buffer, Bank of Mongolia Chief Economist Bold Sandagdorj said in an e-mail yesterday. The three-year period will begin in May, he wrote.

The nation’s foreign reserves have fallen amid lower prices for copper and coal, its main exports. Currency holdings stood at $2.44 billion at the end of January, according to the central bank’s website, and were 40 percent lower than a year earlier. Mongolia’s tugrik has declined 20 percent in the past 12 months to 1,767.50 per dollar, the sixth worst performance among more than 100 exchange rates tracked by Bloomberg.

The currency-swap line with China will give Mongolia “an adequate reserve buffer to maintain overall macro balance,” he said. The authority expects a substantial decline in Mongolia’s trade- and current-account deficits this year, which will reduce demand for foreign exchange, according to Bold.

In the first two months of 2014, Mongolia’s exports rose almost 18 percent to $594.6 million, while imports fell about 24 percent to $613.9 million, according to the National Statistics Office. The trade deficit of $19.3 million was 94 percent lower than a year earlier.

The deficit has narrowed due to “recovered exports and adjustments of the flexible exchange rate,” Bold said.

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