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26 November 2015

Devaluation of Kyrgyzstani som

Devaluation of Kyrgyzstani som

The national currency of Kyrgyzstan (Kyrgystani som, som) is dramatically falling down. The more investments the national budget gets from international partners, the less valuable the som gets.

The national budget of the country is funded by international loans and grunts by one third. The government receives credits in a stable foreign currencies, such as US dollars. The money is converted into soms. The problem is that the government does not buy Kyrgyzstani soms at the domestic foreign exchange market (commercial banks). Instead, they buy soms at the National Bank of Kyrgyzstan. This is why the dollars’ amount does not grow and the som does not get stronger. The credit money turns into the international reserves of the National bank which prints the national currency and provides the government with soms. Sometime later, the soms get into the economy of the country. They increase the stock of money in soms. So, a dollar’s rate increases because it is in high demand whereas there is an abundance of soms.

Devaluation of Kyrgyzstani som

The National Bank is so much into getting international credits and grants, that the stock of money in soms from them is higher than all the stock of soms in the country overall. The amount of money in soms was estimated as 1 billion dollars by September, 2015. The National Bank reserves were 1,85 billion dollars. The Kyrgyzstani economists wonder what for the country has the National bank and what are the benefits of the National Bank international reserves for the people. The international reserves only provoke devaluation and inflation. Moreover, the government is not going to support people who have credits in US dollars and have to pay them back in soms. Officials say that there is no money for such compensation in the budget of the country. Paradoxically, there is money in the State treasury and it leads to the som devaluation. At the same time, there is no money to support common people in such economically hard time.

This has been going on in the country for 20 years. When the economy was more stable, the effects of such a politics were not that notable. However, the situation has changed under the current conditions of the crisis. According to economic experts, the only reason for the national currency devaluation is the way the National bank acts upon all this.