The Chairman of the National Bank of Kazakhstan, Timur Suleimenov, explained why a fixed exchange rate of the tenge to the dollar cannot be implemented under the current economic conditions of the country, as reported by a correspondent from the Kapital.kz business information center.
"The fixed exchange rate that existed in Kazakhstan until 2015 does not align with our economic model," Timur Suleimenov stated during a plenary session of the Senate.
The head of the National Bank clarified that the economy's dependence on oil and its fluctuations leads to an accumulation of imbalances, which then require significant expenditures to maintain a fixed exchange rate.
"In 2014-2015, we witnessed how this imbalance accumulated. At that time, the government spent over $30 billion trying to maintain the exchange rate, but ultimately it did not help— the exchange rate was still devalued. We acknowledged that a fixed exchange rate no longer corresponds to either macroeconomic or market realities," he reported.
Timur Suleimenov also emphasized that a fixed exchange rate is fraught with a number of negative consequences, particularly the dollarization of the economy.
"When a currency is fixed, there arises an obligation to maintain that rate, regardless of changes in the economy. This leads to individuals and companies starting to store their savings in dollars rather than in tenge. As a result, dollarization of deposits and loans occurs, and the economy begins to orient itself towards the dollar rather than the decisions of the domestic government or the National Bank," he believes.
The head of the National Bank also noted that under such conditions, large companies and financial institutions begin to focus on the monetary policy of the United States rather than on internal economic decisions.
"When you peg your currency to the dollar, why then focus on your own decisions if you are still obligated to follow the dollar's rate?" he warned.
The head of the monetary regulator explained that a floating exchange rate is a more stable model for the economy.
"A floating exchange rate acts as an automatic stabilizer. When the economy grows, the exchange rate strengthens, and when the balance of payments weakens, the exchange rate weakens. Thus, the current exchange rate formation regime corresponds to our macroeconomic model, and we intend to continue adhering to it in the future," he concluded.