Gold purchases and ESG standards

International market standards are becoming more stringent. Gold doré purchased domestically by the Bank of Mongolia is monetized through London Bullion Market Association (LBMA)- accredited refineries, which are required to verify the origin of the gold in accordance with the Responsible Gold Guidance. As the latest versions of the guidance have expanded requirements relating to environmental protection, human rights, and anti-corruption, the central bank’s domestic gold purchasing program is also subject to greater scrutiny.

Domestic precious metals purchases help build international reserves. However, payment in domestic currency injects MNT liquidity into the banking system. In particular, when gold prices and production volumes increase, the amount of MNT injected through this channel rises, potentially increasing excess liquidity in the interbank market, amplifying short-term interest rate volatility, and adding to inflationary pressures.

Therefore, a mechanism is needed to regularly and promptly neutralize the impact of excess MNT reserves generated by precious metals purchases in coordination with market operations. Currently, the central bank manages this impact primarily through conventional open market operations. This increases the central bank’s burden of managing excess reserves and may also heighten the risk of short-term interbank interest rates deviating from the policy rate.

In line with strengthening the central bank’s financial capacity and supporting sustainable development under the Bank of Mongolia’s Medium-Term Strategy (2026–2030), the Bank of Mongolia will pursue policies to streamline precious metals purchases, promote responsible mining, and reduce fluctuations in MNT liquidity arising from precious metals purchases.

• Strengthen mechanisms for verifying the origin and traceability of gold. Revise procedures for customer due diligence and documentation of gold origin in line with international standards.
• Support responsible domestic mining through international projects and programs. In 2024, the Bank of Mongolia signed the London Principles alongside the central banks of Colombia, Ecuador, and the Philippines, becoming one of the first four central banks to support responsible production by artisanal and small-scale mines. In this context, the Bank of Mongolia launched a project with the Swiss Better Gold Association and Argor-Heraeus, a precious metals refinery, to verify the origin of responsibly mined gold from Mongolia and supply it to the Swiss market. The program also provides financial incentives to participating in mines for each gram of gold sold. This program will continue to be implemented.
• Explore and gradually introduce a mechanism to supply foreign currency equivalent to the volume of precious metals purchased by the central bank. The Bank of Mongolia will examine the feasibility of selling foreign currency in the domestic foreign exchange market, in an amount equivalent to the newly created MNT liquidity arising from domestic precious metals purchases, based on market principles and predefined rules. In doing so, the Bank of Mongolia will assess in advance the volume and timing of precious metals purchases, payment flows, and their impact on banking system liquidity, and determine the corresponding amount of foreign currency to be sold. It will also examine the principle of distributing foreign currency sales evenly over a specified period to avoid abrupt impacts on the foreign exchange market. Rather than targeting exchange rate fluctuations, this mechanism will be designed primarily to offset the liquidity impact of gold purchases and align monetary policy implementation with market principles.

Full compliance of gold purchased by the Bank of Mongolia with LBMA requirements will facilitate its smooth sale in international markets and support the sustainable accumulation of the official international reserves.

Implementation of the joint program with the Swiss Better Gold Association and Argor-Heraeus will help update procedures and standards for gold origin verification and provide direct financial incentives to responsible mines participating in the program.

Implementation of the proposed mechanism will enable the Bank of Mongolia to offset the additional excess MNT reserves created in the banking system through precious metals purchases by selling an equivalent amount of foreign currency in accordance with market principles. This will help reduce short-term interest rate volatility in the interbank market, improve the effectiveness of monetary policy transmission, and enhance flexibility in liquidity management.

Furthermore, it will facilitate closer integration of precious metal purchasing operations with foreign reserve management and domestic liquidity management, thereby strengthening the central bank’s ability to mitigate inflationary pressures arising through the monetary expansion channel.