The National Bank Has Capped the Foreign Exchange Spread
Translated from Russian with the help of AI. Original: Russian version
The National Bank has capped foreign exchange spreads, but the root of the problem is "white dollars"; the measure will deepen dollarization and weaken competition among exchange offices.
The National Bank is introducing caps on foreign exchange spreads: KZT 7 for the dollar and KZT 10 for the euro. The spread on a currency exchange is the price of a service. The currency exchange market is one of the most competitive in the country, with more than 2,000 exchange offices operating in it. Spreads widen in periods of high demand for foreign currency, and this is how supply and demand are balanced. Imposing caps will increase demand for foreign currency: if exchange offices cannot meet that demand, banks, which can import unlimited amounts of currency, will satisfy any level of demand. But this step will only increase dollarization and restrict competition.
It is important to understand the root causes of why exchange offices began setting high spreads. The main reason has nothing to do with speculation. Some of the countries that Kazakhstani citizens travel to have stopped accepting old-design US dollar banknotes (the so-called "white dollars"), and demand for them has fallen sharply. The National Bank prohibits differentiating dollars by design, so exchange offices have no right to refuse to accept such banknotes. To limit their purchases of white dollars, exchange offices began setting high spreads, which is logical in a market economy: if there is no demand for a product, it cannot be bought at a high price, and its price falls.
At the same time, many banks, unlike exchange offices, can charge fees, which gives them more flexibility in handling white dollars. For example, banks have started charging fees for accepting white dollars, while exchange offices have widened their spreads. However, if a customer brings new-design dollars to an exchange office, they get the market rate with a spread of KZT 2–3.
How can the white dollar problem be solved?
Require second-tier banks to accept white dollars without fees. The banks could then export such dollars to countries where foreign banks accept them.
Centralized involvement of the National Bank. The National Bank could purchase white dollars from exchange offices and second-tier banks in a centralized manner and then ship them abroad.
Diplomatic efforts. The National Bank could negotiate with the central banks of countries that restrict the use of old-design dollars, with the aim of easing or lifting those restrictions.
Problems with the current approach
The current solution does not address the root problem and only adds to the restrictions on people who hold old dollars. Instead, the focus must be on eliminating the causes that force exchange offices to set high spreads. Otherwise, the result will be:
further growth in dollarization;
a stronger position for banks at the expense of exchange offices, whose operations are restricted;
no long-term solution to the problem.
Conclusion
To stabilize the foreign exchange market and reduce social tension, the root causes of the problem associated with white dollars must be eliminated. This requires a comprehensive approach, including obligations for second-tier banks, involvement of the National Bank, and international cooperation. Only such measures can solve the problem effectively while preserving the competitiveness of the exchange market and protecting the interests of citizens.