By the RK Law No. 86-VI dated 3 July 2017, a number of amendments were made to some legislative acts of the Republic of Kazakhstan on the redistribution of powers between branches of state power (enacted on July 25, 2017) (hereinafter the Law).
In particular, in the RK Law No. 57-III dated June 13, 2005 “On Currency Regulation and Currency Control,” the powers to introduce the so-called “special currency regime” were transferred from the President to the government.
Under the special currency regime certain temporary restrictions on the freedom of foreign exchange operations may be established in case of a threat to the economic security of the country.
According to the amendments, the RK Government may introduce such regime on the basis of a joint representation (recommendation) of the National Bank of the Republic of Kazakhstan (hereinafter the NBRK) and the relevant authorized bodies.
As before, the Law lists the following restrictions:
- The requirement to place an interest-free deposit in the amount determined as a percentage of the amount of the currency transaction for a fixed period with an authorized bank or with the NBRK
- The requirement to obtain a special permit from the NBRK for conducting foreign exchange operations
- The requirement of compulsory sale of foreign currency received by residents 4) Restrictions on the use of accounts in foreign banks, the establishment of a time limit for the return of foreign exchange earnings and limits on the amounts, quantity and currency of settlement for foreign exchange transactions.
In addition, other temporary currency restrictions may be established by the decision of the Government on the basis of the proposal of the NBRK and the relevant authorized bodies.
At the same time, the pre-conditions for the introduction of a special currency regime remained unchanged. Such pre-conditions include a threat to the economic security of the country and the stability of its financial system, if the situation cannot be resolved by other measures of economic policy.
Interestingly, the dossier to the draft Law indicated that the adoption of appropriate changes in the currency legislation would increase the independence and responsibility of the NBRK in eliminating threats to the economic security of the country and the stability of its financial system. The original version of the draft law (as of February 2017) provided that the right to introduce a special currency regime is exercised by NBRK after consultation with the Government. However, as can be seen from the foregoing, the legislator ultimately decided to limit the independence of the financial regulator in this matter, only leaving to it, in fact, the right to propose the introduction of a special currency regime.
Against the background of the past devaluations of the national currency, a question arises whether it became easier to introduce a special currency regime in Kazakhstan now that the relevant power has been transferred to the Government.
From the political point of view, it can be assumed that it could be easier for the Government to adopt a collective decision to introduce a special currency regime, rather than for the Head of the State to take on individual responsibility for such kind of decision. From a legal perspective, it seems, the Law established a more complex procedure for introducing a special currency regime:
- First, the NBRK is to make a representation jointly with the relevant authorized bodies.
- Second, the presence of the general wording "the relevant authorized bodies" in practice may complicate the decision-making process, as state bodies in their activities have become accustomed to being guided by the specific statutory prescribed competency.
- Third, the procedure requires a decision of the Government as a collegial body.
Therefore, it can hardly be asserted that the amendments in question simplified the decision-making on the introduction of a special currency regime.
In conclusion, we note that restricting the freedom of conversion and foreign currency remittance in any country is perceived extremely negatively by investors. Such restrictions can cause significant damage to the country’s investment climate. However, in Kazakhstan, despite the legal possibility of its introduction, a special currency regime has never been introduced before (even when the national currency experienced major devaluation in the past).
Transfer of power to introduce a special currency regime from the President to the government was associated with the establishment of a quite comprehensive procedure for its introduction, which suggests that the state continues to consider a special currency regime as an exceptional and extraordinary measure.