Expert Analysis: Beware of a Bread-Basket Full of Soms

Friday, January 31, 2025 15:26 How the National Bank’s Money Printing Could Trigger Hyperinflation in Kyrgyzstan Recently, the Zhogorku Kenesh proposed that the National Bank transfer its profits to the state budget and print more money. However, the ease with which this proposal was voiced raises serious concerns about the potential for hyperinflation—an uncontrollable surge in prices accompanied by a rapid depreciation of the national currency due to an oversupply in the market. Economist Iskender Sharsheev warned Vesti.kg of the risks involved: “Perhaps it’s time for us to study what happened in the Weimar Republic, Zimbabwe, and even Turkey in recent years. In those cases, officials claimed there was no problem with money because they could simply print more. Even the US, which has increased its money supply by an amount equal to 20% of its entire historical total over the past five years, relies on state guarantees and economic growth to protect its currency. They maintain a reasonable limit on money printing while benefiting from strong arms sales, energy resources, and other economic activities.” Sharsheev emphasized that reckless printing of the som could lead directly to hyperinflation: “Unbridled money printing can result in a default and force financial management into the hands of external entities, such as hedge funds managing our national reserves. It is impossible to expand the money supply faster than economic growth. We must increase liquidity cautiously. Ideally, Kyrgyzstan should diversify by conducting multicurrency transactions and increasing the circulation of various currencies to safeguard our national currency from hyperinflation. Prices are already on the rise—if we print another twenty billion soms, soon you might need a wheelbarrow full of soms just to buy a loaf of bread.” The surge of excess funds in circulation is also expected to impact electronic payments. Many Kyrgyz citizens already rely on bank cards and mobile wallets for transactions, and an inflated currency would force them to deal with unwieldy sums: “You might eventually have to add numerous zeros to every transaction. Money printing is a dangerous tool. If confidence in our national currency erodes, we risk the emergence of black markets for currencies, pushing people towards crypto alternatives like Bitcoin and Ethereum. Thus, any decision to print more soms must be made with extreme caution, as the uncontrolled expansion of the money supply could have disastrous consequences.” It is important to recall that the parliament had advised the National Bank to print more money without worrying about transferring profits. Yet, deputy Dastan Bekeshev cautioned his colleagues and officials about the dangers of hyperinflation and called for a re-evaluation of the relationship between the National Bank and the Cabinet of Ministers. Source: https://vesti.kg/zxc/item/135198-ekspert-za-khlebom-pridetsya-khodit-s-telezhkoj-somov.html