(Mike Maharrey, Money Metals News Service) The National Bank of Kazakhstan (NBK) recently announced plans to sell dollars to ease the inflationary pressure caused by its gold purchases.
The Kazakh central bank buys most of its gold from domestic production, growing its reserves without engaging in the world gold market.
Kazakhstan ranked sixth in the world in gold production in 2023. The central bank has a priority right to purchase gold from domestic gold miners. According to the Astana Times, the domestic gold purchases are set up “to boost international reserves and protect the economy from external shocks.”
The program has increased Kazakh official reserves to $45.8 billion, about half of that held in gold.
However, the gold purchase program has a downside. It leads to inflation.
The NBK funds its gold purchases by issuing tenge (the Kazakh currency). In effect, it creates currency out of thin air to purchase gold from Kazakh miners. In effect, the process is not unlike the Federal Reserve’s quantitative easing operations, the difference being it adds gold to its balance sheet instead of bonds, notes, and mortgage-backed securities.
The Kazakh economy has been struggling with price inflation in recent years. The country’s CPI rose to 8.6 percent in December, aligning with the forecast range of 8 to 9 percent in 2024.
NBK Governor Timur Suleimenov addressed the increasing inflationary pressure during a press conference earlier this year.
“External price pressures stem from rising inflation in Russia, Kazakhstan’s key trading partner. Additionally, inflation in leading global economies has been gaining momentum in recent months, laying the groundwork for a prolonged period of elevated global interest rates. These expectations are already reflected in the strengthening of the U.S. dollar, which exerts pressure on the currencies of emerging markets, including the tenge.”
To ease the inflationary pressure of the country’s gold buying program, Suleimenov said the NBK will begin selling dollars in “a mirroring operation related to gold purchases.”
In practice, the central bank will sell dollars to match the amount of tenge created to buy gold. The sale of the greenbacks will serve to pull tenge out of the economy, something akin to a quantitative tightening operation.
Suleimenov emphasized that the central bank plan was not “currency intervention.”
“Their main objective is to reduce the excess amount of money in the economy and achieve the 5 percent inflation target. At the same time, these measures will create an additional currency supply in the domestic market, contributing to balancing the domestic currency market.”
While it appears that the National Bank of Kazakhstan is not directly aiming for de-dollarization, the plan does show that it values gold reserves more than dollars.
De-dollarization refers to countries trying to minimize their use and holdings of U.S. dollars. For example, countries including China, India, and many others are shifting away from dollar dependence and increasing their gold reserves. We’ve also seen de-dollarization as a talking point among BRICS nations.
This is not merely speculation; de-dollarization is a documented trend, even popping up as a topic in mainstream media.
While the dollar is not on the verge of imminent collapse, it may face a slow and inexorable decline.
Even a small decline in the dollar’s status as the world’s reserve currency could spell trouble for the economy. The U.S. heavily relies on global demand for dollars to support its borrowing and spending habits. Any significant shift away from the dollar could lead to even higher price inflation and a loss of the dollar’s purchasing power. In the worst-case scenario, significant de-dollarization could lead to hyperinflation.
The National Bank of Kazakhstan’s decisions to forgo dollars to facilitate expanding its gold reserves is another small crack in dollar hegemony.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
 recently announced plans to sell dollars to ease the inflationary pressure caused by its gold purchases. The Kazakh central bank buys most of its gold from domestic production, growing its reserves without engaging in the world gold market.){kind=link}