Tag Archives: ForEx

Cryptocurrency: A New Financial World Order?

Cryptocurrencies have become a global phenomenon. While most people still don’t understand the concepts of it, many companies, major banks, financial institutions, and governments are aware of the importance of cryptocurrencies and are developing regulations and business models to manage and channel the trend.

In several-part series of articles we will go through all basic aspects of cryptocurrency and the firm’s growing cryptocurrency practice. Today we will discuss basic concepts of cryptocurrencies.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptography is process of converting legible information into an almost uncrackable code, to track purchases and transfers. Therefore, cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency is that it is not issued by any central authority, such as a central bank or government. Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank. Transactions are recorded on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.

Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that periodically generate coins. After coins are mined, users can also buy the cryptocurrencies from brokers, then store and spend them using  online cryptographic wallets.

Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private “keys”, which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them, for security purposes. The public key (comparable to a bank account number) serves as the address which is published to the world and to which others may send cryptocurrencies. The private key (comparable to an ATM PIN) is meant to be a guarded secret, and only used to authorize cryptocurrency transmissions. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.

As a new and largely unregulated financial asset, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum overnight. But the same works the other way, with volatility sometimes resulting in steep losses of value.

Also because of the level of anonymity they offer, cryptocurrencies are often associated with illegal activity, such as money laundering, tax evasion and illegal activities on the dark web, however, crypocurrencies themselves are not illicit or criminal item. Those seeking to invest in or buy cryptocurrencies should be aware of the volatility of the market and the risks they take, and be careful about the implications when choosing to buy the currencies.

Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments.

Future posts in this series will examine the current state of crypocurrency regulation, legal trends in crypocurrency and practical aspects of engaging in cryptocurrency related business in Mongolia.

Bank of Korea Assisting with Modernization of Mongolia’s Foreign Exchange Policy

The Bank of Mongolia, signed a cooperation agreement on June 21, 2017 with the Bank of Korea. The agreement solidifies plans by both organizations to cooperation regarding development of a comprehensive strategy for development of the foreign exchange market in Mongolia.

The Bank of Korea has been conducting a study on Mongolia’s foreign exchange market. The results of the study are expected to have an important impact on development of foreign exchange regulations and growth of the foreign exchange market in Mongolia.

Major complaints about the current state of the foreign exchange market in Mongolia include the lack of transparency in the process and inefficient operations. The study will draw on the Bank of Korea’s past experience in managing foreign exchange issues in Korea to set out a road map for Mongolia.

The plan is expected to help stabilize the exchange rate of the Mongolian Tugrug, which will facilitate a better environment for foreign investment and domestic economic growth.

Trading Bitcoin (and other Crypto-Currencies) in Mongolia

Following our recent post on foreign exchange trading in Mongolia, we had several inquiries regarding trade of crypto-currencies, such as Bitcoin. While there are no specific regulations in Mongolia addressing use or trade of crypto-currency, both Foreign Exchange and electronic payment and remittance services are allowed under the current regulatory framework, with only a permit required.

A Bitcoin trading (or mining) operation can be established in Mongolia relatively easily. One will only need to establish a Mongolian corporation. Then application must be made to the Financial Regulatory Commission of Mongolia for the appropriate permit.

Foreign Exchange in Mongolia

Financial Regulatory Commission (the FRC) and Bank of Mongolia (Mongol Bank), which serves as the central bank of Mongolia, are authorized to regulate Foreign Exchange (ForEx) trading within Mongolia. The Law on Currency Settlement is the primary legislative authority as to conduct of ForEx in Mongolia.

The currency market of Mongolia operates on the basis of supply and demand and consists of the currency exchange activities of the authorized banks, exchanges and brokerage companies.

Mongol Bank is permitted to buy currencies and gold bullion from domestic and foreign banks, as well as from business entities, other organizations and from individuals. Mongol Bank’s primary official purpose for such purchases is management of currency and wealth reserves of Mongolia. Mongol Bank may likewise sell foreign currency and gold from its reserves as part of efforts to maintain the general stability of the Tugrug (the currency of Mongolia).

Mongol bank acts to fix the official exchange rate of the Tugrug, and to provide guidance as to the same. These fixed rates are set in relation to currencies which are bought and sold on the currency market by commercial banks on a comparative basis against a stable foreign currency used in foreign commerce by a majority of countries. The rate fixed by Mongol Bank is used in the State budget and for customs purposes.

An increase or decrease in the Tugrug exchange rate by 5 percent or more from the previous day shall be brought to the attention of the Prime Minister of Mongolia. This is only report and the Prime Minister has no authority to personally order or to prevent the Governor of Mongol Bank from increasing or decreasing the Tugrug exchange rate in accordance with market conditions.

Mongol Bank also sets various rules and regulations regarding foreign exchange activities, including as to FX swaps, forward transactions, and Forex auctions.

Commercial banks are able to establish their own exchange rate for using Tugrugs to buy and sell foreign currencies based on market conditions. Likewise the bank sets its own rate of commission.

Upon obtaining a license from Mongol Bank, Mongolian Commercial banks are allowed to facilitate non-cash transactions in foreign currency, buy and sell foreign currency in cash, establish and operation accounts in foreign currency (and pay required interest), provide credit and provide guarantees in foreign currency.

A Non-banking financial company may trade foreign currency after obtaining a license from the FRC.