The Mongolian tögrög or tugrik (sign: ₮; code: MNT) is the official currency of Mongolia. It is a resource and commodity currency similar to the Australian dollar but with much higher yield and real interest rate.

MNT was second best performing currency in the world in 2010 appreciating 13% against USD. However, in 2011 the Mongolian togrog depreciated by 11.4 percent against the USD. According to the World Bank, the trend for the year suggests that high domestic inflation has been mirrored in the weakening of the currency. Rising global risk aversion and declining commodity prices are additional factors contributing to the depreciation as has also occurred in other emerging mineral rich economies.

According to Bank of Mongolia, the main factors of MNT depreciation in 2011 in terms of economic fundamentals were substantial increase in current account deficits and significant reduction in net foreign exchange inflows.

According to the Bank of Mongolia in 2010, the economy recovered quickly, gaining trust from investors, and a lot of currency was circulating in Mongolia. Additionally, mining operations were in their initial stages, and the public demand for US Dollars was low. This caused MNT’s rate to increase by 13 percent. In 2011, the economy had grown by 17 percent; mining operations were under heavy development and the demand for USD increased rapidly, both from public and the Government. Although the USD inflow was the same, its outflow had increased; causing an 11 percent drop in MNT rate. In other words, the USD/ MNT rate depends on the way Mongolia spend its income. According to IMF, extraordinary growth in spending could lead to overheating the economy, leading to high inflation, rapid growth in imports due to excessive domestic demand, and macroeconomic uncertainty are influencing the exchange rate. Many factors could be behind the recent moves, including external considerations (such as an increase in global risk aversion which has tended to cause the U.S. dollar to appreciate and the euro to depreciate in 2012) and domestic Mongolian factors (such as concerns over macroeconomic stability related to the government’s fiscal policy which has tended to put downward pressure on Mongolia’s currency.

According Bank of Mongolia, main indicators of the balance of payments of 2011:

Deficit of current account was MNT 2.56 billion and increased 2.9 times yoy or by USD 1.68 billion. This was mainly influenced by service trade deficit rose 3.9 times and reached USD 1.15 billion. Good external trade deficit rose 5.1 times and reached 925 million USD.

Surplus of capital and financial account was 2.3 billion USD and increased 1.3 times yoy or by USD 556 million. This is connected to net increase of FDI 2.3 times or USD 2.1 billion.

54% of this FDI is loan funding, 37% of equity capital and 9% re-investment of income.

Deficit of current account is financed by inflow of financial capital and foreign exchange official reserves in December of 2011 have reached 2.27 billion USD, this is increase of 8.7% yoy or by USD 183 million. Trend in exchange rate in 2012 will depend on Mongolia’s terms of trade condition, foreign exchange supply and demand, market participants’ expectation, market sentiment and Bank of Mongolia’s policy measures.

After massive increase in exports due to developing the OyuTolgoi mine is over in 2014, it is widely expected that the MNT will appreciate significantly against the USD and other major currencies. In the meantime, one of the highest interest rates in the world means that investors compound capital at an attractive rate.