Bank of Mongolia

The Bank of Mongolia, commonly known as Mongolbank, is the central bank of Mongolia. Its principal statutory objective is to preserve the stability of the Mongolian tögrög. In pursuit of that objective, it supports balanced and sustainable economic development by working to maintain monetary stability, sound financial markets, and a resilient banking system. The institution originated on 2 June 1924, when a Mongolian-Russian joint institution known as the Trade and Industry Bank of Mongolia was opened in Urga, now Ulaanbaatar. It began with a head office in Urga and a branch in Altanbulag. The bank had 22 employees, including Russian specialists and Mongolian staff, and operated at a time when Mongolia did not yet have a national currency. Foreign currencies therefore circulated widely during its early period, limiting the institution’s ability to conduct a conventional monetary and credit policy. A major early turning point came in February 1925, when Mongolia’s government authorized monetary reform. The Bank of Mongolia subsequently issued the tögrög as the country’s national currency. The initial currency framework was linked to precious metals, stable foreign currency, and marketable goods. The introduction of the tögrög established the bank as a central institution in Mongolia’s monetary sovereignty and provided the basis for later monetary administration. The bank’s institutional character changed during the Soviet-aligned period. By 1954, Mongolian participation in its staff had expanded substantially, and the Soviet Union transferred its ownership interest and capital holdings to the Mongolian state. The institution was then renamed the State Bank of Mongolia. It continued to perform central banking and banking-sector functions within the country’s state-directed economic system. In 1991, Mongolia established a two-tier banking system during its transition toward a market economy. The Bank of Mongolia assumed the role of central bank, while commercial banking activities increasingly moved to separately organized financial institutions. Since then, its responsibilities have included setting and implementing monetary policy, issuing and managing the national currency, holding international reserves, supporting payment-system development, and contributing to the stability and supervision of the financial system. The bank has periodically tightened capital and prudential requirements for commercial banks. Mongolia’s banking sector experienced repeated crises during the 1990s, and non-performing loans were subsequently reduced before rising again during the global financial crisis. The Bank of Mongolia has also taken emergency measures involving troubled financial institutions. In 2009, it supported the rescue of Zoos Bank and its combination with Anod Bank into the state-owned State Bank. In 2013, the separate State Bank took over Savings Bank after financial difficulties connected with a major bad loan. These episodes illustrate the central bank’s role in financial-stability operations, while also showing that rescued commercial banks remained institutionally distinct from the Bank of Mongolia itself. Monetary policy has responded to inflation, credit expansion, exchange-rate pressures, and external shocks. In May 2010, the bank raised its policy rate by one percentage point to 11 percent in an effort to reduce consumer-price inflation and moderate rapid growth in credit and monetary aggregates. It also manages Mongolia’s international reserves and participates in financial-inclusion initiatives, including membership in the Alliance for Financial Inclusion. The Bank of Mongolia remains an active public monetary authority at the center of Mongolia’s financial system.

The Bank of Mongolia was established on 2 June 1924 as a joint Mongolian-Russian financial institution called the Trade and Industry Bank of Mongolia, also referred to in official documents as the Bank of Mongolia. Its headquarters were in Urga, the historical name of present-day Ulaanbaatar, and it initially operated one branch in Altanbulag. The bank opened with 22 employees and a capital base denominated in the currency used at the time. The institution faced an immediate monetary challenge because Mongolia lacked a national currency. Foreign currencies circulated during its first 18 months, making it difficult to implement a consistent domestic credit and monetary policy. In response, the Mongolian government adopted a monetary-reform resolution on 22 February 1925. The Bank of Mongolia then issued the tögrög, Mongolia’s national currency. The initial currency arrangement was supported by precious metals, stable foreign currency, and marketable goods, establishing a monetary foundation for the modern Mongolian state. During the following decades, the bank operated within Mongolia’s Soviet-aligned economic system. Mongolian participation in the institution grew substantially, and by 1954 the Soviet Union had transferred its share of the bank’s capital and stock to the Mongolian state. The institution was subsequently renamed the State Bank of Mongolia. Under the state-directed system, it combined central-bank responsibilities with a broader role in the national banking structure. Mongolia’s transition to a market economy brought a fundamental institutional reorganization. In 1991, the country introduced a two-tier banking system in which the Bank of Mongolia became the central monetary authority and commercial banking was separated into distinct operating institutions. Since that transition, the bank has concentrated on maintaining the value and stability of the tögrög, conducting monetary policy, managing international reserves, supporting payment infrastructure, and promoting stability in financial markets and the banking sector. The bank has used prudential tools, including periodic increases in commercial-bank minimum capital requirements, to strengthen Mongolia’s financial system. The banking sector experienced serious crises during the 1990s. Non-performing loans subsequently declined, although they rose again during the global financial crisis before later improving. The central bank has also participated in crisis-management operations. In 2009, it supported the rescue of Zoos Bank and its combination with Anod Bank into State Bank. In 2013, Savings Bank was taken over and merged with State Bank after financial distress connected with a major loan to a gold-mining business associated with its parent group. State Bank remained a separate state-owned commercial bank rather than becoming part of the Bank of Mongolia. Monetary policy became more restrictive in May 2010, when the Bank of Mongolia raised its policy rate to 11 percent to bring down inflation and restrain fast growth in credit and broad monetary aggregates. The bank also manages Mongolia’s foreign reserves and participates in international financial-sector initiatives. Its membership in the Alliance for Financial Inclusion reflects an institutional interest in widening access to formal financial services. Today, the Bank of Mongolia remains Mongolia’s central bank and the principal public institution responsible for monetary and financial stability.

• 2013

  Savings Bank transferred to State Bank

  [1]Bank of Mongoliaen.wikipedia.org

  Savings Bank was taken over and merged with State Bank following severe financial problems associated with a large bad loan.

• 2010

  Policy rate tightened

  [1]Bank of Mongoliaen.wikipedia.org

  The policy rate was increased by one percentage point to 11 percent to address inflation and rapid credit expansion.

• 2009

  Bank rescue and consolidation

  [1]Bank of Mongoliaen.wikipedia.org

  The bank supported the rescue of Zoos Bank and its combination with Anod Bank to form State Bank.

• 1991

  Two-tier banking system created

  [1]Bank of Mongoliaen.wikipedia.org

  Mongolia established a new two-tier banking system, placing the Bank of Mongolia in the role of central bank alongside separately organized commercial banks.

• 1954

  Ownership transferred to Mongolia

  [1]Bank of Mongoliaen.wikipedia.org

  The Soviet Union transferred its capital and stock interest to the Mongolian state, after which the institution was renamed the State Bank of Mongolia.

• 1925

  Tögrög introduced

  [1]Bank of Mongoliaen.wikipedia.org

  Following a government monetary-reform resolution, the bank issued Mongolia’s national currency, the tögrög.

• 1924

  Bank established

  [1]Bank of Mongoliaen.wikipedia.org

  The Trade and Industry Bank of Mongolia, also known as the Bank of Mongolia, opened in Urga with a head office and a branch in Altanbulag.

Mongolia’s sovereign monetary authority and central institution for currency stability, monetary policy, banking-system resilience, and financial-market development.

• National currency · 1925

  Mongolian tögrög

  The Bank of Mongolia issues and manages Mongolia’s national currency, the tögrög. It was introduced in 1925 after the country’s monetary-reform decision and replaced the fragmented circulation of foreign currencies as the foundation of domestic monetary administration.

• Central banking

  Monetary policy operations

  The bank uses policy instruments, including its policy rate and related monetary operations, to influence inflation, credit conditions, liquidity, and the stability of the tögrög. Its stated monetary objective is pursued alongside broader support for orderly financial-market and economic development.

• Reserve management

  Foreign-exchange reserve management

  As Mongolia’s central bank, it holds and manages the country’s international reserves. Reserve management supports confidence in the national currency and contributes to the country’s capacity to manage external payments and exchange-rate pressures.

• Financial regulation

  Banking-system regulation and stability

  The Bank of Mongolia contributes to banking-sector resilience through prudential requirements, capital standards, supervisory measures, and crisis-management actions. Its interventions have included support for troubled commercial banks and arrangements intended to protect continuity in the banking system.

• Financial infrastructure

  Payment and settlement infrastructure

  The bank supports the operation and development of Mongolia’s payment and settlement environment, helping financial institutions conduct domestic transactions and settle obligations within the national financial system.

• 2013

  Savings Bank takeover and mergerM&A

  Background

  Savings Bank experienced severe financial distress associated with a major bad loan connected to a gold-mining business owned by its parent group.

  Action taken

  Savings Bank was taken over and merged with State Bank.

  Aftermath

  The transaction maintained a banking operation under state ownership; State Bank remained separate from the Bank of Mongolia.

  Source

• 2010

  Policy rate increased to 11 percentPrice change

  Background

  Consumer-price inflation and rapid growth in credit and monetary aggregates were creating macroeconomic pressure.

  Action taken

  The central bank raised its policy rate by one percentage point, bringing it to 11 percent.

  Aftermath

  The measure was intended to reduce inflationary pressure and moderate credit expansion.

  Source

• 2009

  Support for Zoos Bank and Anod Bank consolidationM&A

  Background

  Financial-sector stress required intervention involving troubled commercial banks.

  Action taken

  The Bank of Mongolia supported the rescue of Zoos Bank and its combination with Anod Bank into State Bank.

  Aftermath

  State Bank became a government-owned commercial bank separate from the Bank of Mongolia.

  Source

• 1991

  Adoption of the two-tier banking systemStrategy

  Background

  Mongolia was transitioning from a state-directed economy toward a market-based financial system.

  Action taken

  The Bank of Mongolia was established in its modern central-bank role while commercial banking was separated into distinct institutions.

  Aftermath

  The bank became the country’s principal monetary authority, focusing on currency stability, monetary policy, reserves, and financial-system stability.

  Source

• 1925

  Issue of the tögrögProduct launch

  Background

  Mongolia lacked a national currency and foreign currencies circulated during the bank’s early operations.

  Action taken

  The bank issued the tögrög after the government approved monetary reform.

  Aftermath

  The tögrög became Mongolia’s national currency and the central instrument of domestic monetary administration.

  Source

• 2013

  Savings Bank is taken over and merged with State Bank[1]Bank of Mongoliaen.wikipedia.org

  M&A · Bankruptcy · Regulation

  Savings Bank, described as Mongolia’s fifth-largest lender at the time, was taken over after severe financial problems associated with a bad loan linked to its parent group. It was merged with State Bank, a separate state-owned commercial bank.

• 2010

  Bank of Mongolia raises policy rate to 11 percent[1]Bank of Mongoliaen.wikipedia.org

  Pricing · Regulation

  The central bank increased its policy rate by one percentage point to contain consumer-price inflation and slow rapid expansion in credit and monetary aggregates.

• 2009

  Bank of Mongolia supports rescue and consolidation of Zoos Bank and Anod Bank[1]Bank of Mongoliaen.wikipedia.org

  M&A · Regulation

  The central bank supported the rescue of Zoos Bank, which was subsequently combined with Anod Bank to create the government-owned State Bank.

1. 1Bank of Mongoliaen.wikipedia.org