DEPARTMENT of EDUCATION and SCIENCE of

KYRGYZ REPUBLIC
BISHKEK HUMANITARIAN UNIVERSITY
named after K. Karasaev

Department of foreign language

Theme: The role of National Bank

done by:gr. M 11/5

A. Kasmalieva
checked by: ph.d. M.K.Alishova

Bishkek 2015
Plan:

Introduction ..3
1
I. The role of National Bank...5

I.1. The history of National Bank5

I.2. Aims, tasks and functions of National Bank.6

II. The National Bank of the Kyrgyz Republic..9

2.1 National currency of the Kyrgyz Republic...11

2.2. The role of the Bank of Kyrgyzstan as the fiscal agent and

Adviser ..13

2.3. Relations between the Bank of Kyrgyzstan and other

banks ......14

2.4. Foreign economic relations and currency operations15

Conclusion...17

Bibliography19

Introduction

The theme "The Role of the National Bank" is interesting to me, because this
is currently the most important and urgent problem for our country, as in the

2
study of this report, we consider and analyze the National Bank of the Kyrgyz
Republic.

The purpose of this report is the National Bank of the Kyrgyz Republic and its
foreign economic relations. Relevance of the topic is of paramount importance for
the functioning of the National Bank of the economy, its complexity and
versatility.

The report details the history of the National Bank, describes the original
origin of the National Bank of the United States. It described in detail the
difference between the National and the Central Bank.

Analysis of the structure occupies an important place in the consideration of

the report.

To achieve this goal it is necessary to solve a number of specific objectives:

- Consider the goals, objectives and functions of the National Bank as a whole.

To identify the concept of costs and their role in the conduct of economic policy

- To analyze the Role of the National Bank of the Kyrgyz Republic.

- To analyze the Structure of the NBKR.

Goals and objectives report identified its structure. The report consists of the
following components:

-Introduction, which defines the object of study, describes the goals, objectives of
the report;

- Theoretical value, which outlines the history of the National Bank, the United
States, the Kyrgyz Republic;

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-practically study that characterized the currency of the Kyrgyz Republic;

-the conclusion contains the results and suggestions about the work.
As the initial information base materials involved theoretical studies of various
authors, textbooks and manuals, articles and Internet resources.
Bibliography consist of scientific fictions, articles, encyclopedia,
dictionaries, internet resources.

1. The role of National Bank

1.1. The history of National Bank

In banking, the term national bank carries several meanings: especially in

developing countries, a bank owned by the state an ordinary private bank which
operates nationally (as opposed to regionally or locally or even internationally) in
the United States, an ordinary private bank operating within a specific regulatory
structure, which may or may not operate nationally, under the supervision of the
Office of the Comptroller of the Currency . In the past, the term "national bank"

4
has been used synonymously with "central bank ", but it is no longer used in this
sense today. Some central banks may have the words "National Bank" in their
name; conversely if a bank is named in this way, it is not automatically considered
a central bank . For example, National Bank of Canada of Montreal, Canada, is a
privately owned commercial bank. On the other side, National Bank of Ethiopia is
the central bank of Ethiopia and National Bank of Cambodia is the central bank of
Cambodia .

In the United States, the term "national bank" originally referred to the
revolutionary era Bank of North America , later, First Bank of the United States ,
or its successor the Second Bank of the United States . All are now defunct. In the
modern US the term "national bank" has a precise meaning: a banking institution
chartered and supervised by the Office of the Comptroller of the Currency
("OCC"), an agency in the US Treasury Department , pursuant to the National
Bank Act . The inclusion of the word "National" in the bank's name or the
designation "National Association" or its abbreviation "NA" is a required part of
the distinguishing legal title of a national bank, as in " Citibank , NA" Many " state
banks ", by contrast, are chartered by the applicable state government (usually the
state's department of banking). The Federal Deposit Insurance Corporation (FDIC)
insures deposits at both national and state banks.

The advantage of a National Bank Act charter is that a national bank is not
subject to state usury laws intended to prevent predatory lending. (However, see
also Cuomo v. Clearing House Association, LLC , stating that federal banking
regulations do not preempt the ability of states to enforce their own fair-lending
laws .There is currently no federal cap on rates. The federal government only
requires that whatever rates, fees or terms are set by issuers be disclosed to the
consumer in accordance with the Truth in Lending Act.

Notwithstanding the name, not all "national banks" have nationwide

operations. Some "national banks" have operations in only one city, county, or

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state. "National banks" should also be distinguished from federal savings
associations (which include federal savings and loans , and federal savings banks ,
FSB), which are financial institutions chartered by the Office of Thrift
Supervision , another agency in the US Treasury Department which was
dismembered by the 112th Congress and merged with the Office of the
Comptroller of the Currency on July 21, 2012. The Federal Reserve is the United
States' central bank; the Federal Reserve is not a "national bank" in American
banking-law terminology, but rather a unique system of institutions specially
chartered by Congress to serve in this capacity.

1.2. Aims, tasks and functions of National Bank

Functions of a central bank may include:

implementing monetary policies.

setting the official interest rate used to manage both inflation and the country's
exchange rate and ensuring that this rate takes effect via a variety of policy
mechanisms

controlling the nation's entire money supply

the Government's banker and the bankers' bank (" lender of last resort ")

managing the country's foreign exchange and gold reserves and the Government's
stock register

regulating and supervising the banking industry

At the most basic level, monetary policy involves establishing what form of
currency the country may have, whether a fiat currency , gold-backed currency
(disallowed for countries in the International Monetary Fund ), currency board or a
currency union . When a country has its own national currency, this involves the
issue of some form of standardized currency, which is essentially a form of

6
promissory note : a promise to exchange the note for "money" under certain
circumstances. Historically, this was often a promise to exchange the money for
precious metals in some fixed amount. Now, when many currencies are fiat
money , the "promise to pay" consists of the promise to accept that currency to pay
for taxes. A central bank may use another country's currency either directly in a
currency union, or indirectly on a currency board. In the latter case, exemplified by
the Bulgarian National Bank , Hong Kong and Latvia , the local currency is backed
at a fixed rate by the central bank's holdings of a foreign currency. Similar to
commercial banks, central banks hold assets (government bonds, foreign exchange,
gold, and other financial assets) and incur liabilities (currency outstanding).
Central banks create money by issuing interest-free currency notes and selling
them to the public (government) in exchange for interest-bearing assets such as
government bonds. When a central bank wishes to purchase more bonds than their
respective national governments make available, they may purchase private bonds
or assets denominated in foreign currencies. The European Central Bank remits its
interest income to the central banks of the member countries of the European
Union. The US Federal Reserve remits all its profits to the US Treasury. This
income, derived from the power to issue currency, is referred to as seigniorage ,
and usually belongs to the national government. The state-sanctioned power to
create currency is called the Right of Issuance . Throughout history there have
been disagreements over this power, since whoever controls the creation of
currency controls the seigniorage income. The expression "monetary policy" may
also refer more narrowly to the interest-rate targets and other active measures
undertaken by the monetary authority.

Goal independence
The central bank has the right to set its own policy goals, whether inflation
targeting, control of the money supply, or maintaining a fixed exchange rate .
While this type of independence is more common, many central banks prefer to

7
announce their policy goals in partnership with the appropriate government
departments. This increases the transparency of the policy setting process and
thereby increases the credibility of the goals chosen by providing assurance that
they will not be changed without notice. In addition, the setting of common goals
by the central bank and the government helps to avoid situations where monetary
and fiscal policy are in conflict; a policy combination that is clearly sub-optimal.

2. The National Bank of the Kyrgyz Republic

The National Bank of the Kyrgyz Republic is the central bank of Kyrgyzstan. It
was established on the country's independence in 1991. The location of the Bank of
Kyrgyzstan shall be the city of Bishkek. The Bank of Kyrgyzstan shall have the
right to set up branches, representative offices and to appoint its representatives
both within the Kyrgyz Republic and abroad. The Bank of Kyrgyzstan shall have a
seal bearing its name and image of the State Emblem of the Kyrgyz Republic. It
shall be prohibited to use the combination of words "Bank of Kyrgyzstan",
"Kyrgyz Banky", the acronyms "CBKR" and "NBKR" as well as words "Central",
"National", in the names or logos of other banks, in the full or shortened form, in
any language.

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 Functions of the Bank of Kyrgyzstan

The Bank of Kyrgyzstan shall have the following functions:

1) Develops, determines and implements the monetary policy in the Kyrgyz

Republic;

2) Exercises regulation and supervision over activities of banks and finance and
credit institutions licensed by the National Bank of the Kyrgyz Republic;

3) Develops and conducts the uniform currency policy;

4) Has the sole responsibility to issue banknotes;

5) Promotes effective functioning of the payment system;

6) Establishes rules of conducting banking operations, accounting and reporting for

the banking system.

Operations of the Bank of Kyrgyzstan

To achieve the objectives established by this Law, the Bank of Kyrgyzstan shall
exercise, on terms determined by it, the right to carry out the following operations:

a. to make credits repayable in not more than six months, secured by securities
and other assets determined by the Bank of Kyrgyzstan in accordance with this
Law and the legislation of the Kyrgyz Republic;

b. to carry out banking operations on servicing banks and other financial

institutions;

c. to buy and sell checks, promissory notes and bills of exchange of first-class
issuers, backed, as a rule, by commodities, with maturity of not more than six
months;
9
d. to buy and sell in the secondary market securities issued by the Government
of the Kyrgyz Republic;

e. to buy and sell securities issued by the Bank of Kyrgyzstan as well as

securities issued by foreign states and international organizations;

f. to buy and sell precious metals and other types of exchange medium;

g. to buy and sell foreign currencies;

h. to open accounts with banks and financial institutions;

i. to act as an intermediary in transactions with funds provided by international

financial institutions for financing various programs, under conditions established
by the Board of the Bank of Kyrgyzstan;

j. to carry out other banking operations which are not prohibited by the
legislation.

2.1. National currency of the Kyrgyz Republic

Monetary unit

The monetary unit (the currency) of the Kyrgyz Republic shall be the som. One
som consists of 100 tyins.
The cash currency shall be issued in the form of bank notes and coins.

After the collapse of the Soviet Union attempts were made by most republics to
maintain a common currency. Certain politicians were hoping to at the very least
maintain "special relations" among former Soviet republics, or the " near abroad ".
Another reason were the economic considerations for maintaining the ruble zone.
The wish to preserve the strong trade relations between former Soviet republics
was considered the most important goal. The break-up of the Soviet Union was not
accompanied by any formal changes in monetary arrangements. The Central Bank

10
of Russia was authorized to take over the State Bank of the USSR ( Gosbank ) on 1
January 1992. It continued to ship USSR ruble notes and coins to the central banks
of the fourteen newly independent countries, which had formerly been the main
branches of Gosbank in the republics. The political situation, however, was not
favorable for maintaining a common currency. Maintaining a common currency
requires a strong political consensus in respect to monetary and fiscal targets, a
common institution in charge of implementing these targets, and some minimum of
common legislation (concerning the banking and foreign exchange regulations).
These conditions were far frombeing met amidst the turbulent economic and
political situation.

During the first half of 1992, a monetary union with 15 independent states all
using the ruble existed. Since it was clear that the situation would not last, each of
them was using its position as "free-riders" to issue huge amounts of money in the
form of credit. As a result, some countries were issuing coupons in order to
"protect" their markets from buyers from other states. The Russian central bank
responded in July 1992 by setting up restrictions to the flow of credit between
Russia and other states. The final collapse of the ruble zone began when Russia
pulled out with the exchange of banknotes by the Central Bank of Russia on
Russian territory at the end of July 1993. Kyrgyzstan was the last country to leave
the ruble zone prior to its collapse. The som was introduced on May 10, 1993,
replacing the Soviet ruble at a rate of 1 som = 200 rubles. Initially only banknotes
were issued, coins were not introduced until 2008.

Issue of currency
The Bank of Kyrgyzstan shall have the exclusive right to issue and withdraw
the currency (bank notes and coins.)
Means of payment

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 1. Som is the only legal means of payment in the territory of the Kyrgyz
Republic which both legal entities and individuals must accept without limitations.
2. In case of unjustified refusal to accept soms as means of payment, officials
and citizens shall bear responsibility in accordance with the legislation of the
Kyrgyz Republic.
3. Forgery and illegal reproduction of the currency of the Kyrgyz Republic
shall be prosecuted by Law.

2.2. The role of the Bank of Kyrgyzstan as the fiscal agent and
Adviser

1. The Bank of Kyrgyzstan shall act as the fiscal agent of the Government of
the Kyrgyz Republic, on terms agreed between the Ministry of Finance of the
Kyrgyz Republic and the Bank of Kyrgyzstan.
As a fiscal agent of the Government of the Kyrgyz Republic the Bank of
Kyrgyzstan may perform the agent's functions relating to servicing the external
debt of the Government of the Kyrgyz Republic.
2. The Bank of Kyrgyzstan shall act as a financial adviser to the President of
the Kyrgyz Republic, the Jogorku Kenesh of the Kyrgyz Republic, the Government
of the Kyrgyz Republic in respect of financial and other matters connected with
banking activities.
3. When considering the draft republican budget, the Government of the
Kyrgyz Republic shall consult with the Bank of Kyrgyzstan.

12
 4. Drafts normative legal acts concerning financial and banking activities shall
be considered by the President of the Kyrgyz Republic, the Jogorku Kenesh of the
Kyrgyz Republic and the Government of the Kyrgyz Republic only after the Bank
of Kyrgyzstan has presented its opinion.
Normative legal acts issued by ministries, state committees, administrative
departments and other executive bodies concerning the matters of financial and
banking systems shall be subject to approval by the Bank of Kyrgyzstan.

2.3. Relations between the Bank of Kyrgyzstan and other banks

In order to support the liquidity of banks, the Bank of Kyrgyzstan may grant
to banks a short-term credit repayable in not more than six months, on the
condition that one of the following types of security acceptable to the Bank of
Kyrgyzstan is provided:
1) gold and other precious metals;
2) foreign currency;
3) bills of exchange in national and foreign currencies maturing within six
months and other obligations acceptable to the Bank of Kyrgyzstan;
4) deposits with the Bank of Kyrgyzstan or with another credit institution
acceptable to the Bank of Kyrgyzstan;
5) securities issued by the Government of the Kyrgyz Republic;
6) other types of security acceptable to the Bank of Kyrgyzstan.
In cases established by the Bank of Kyrgyzstan, other assets and commodity-
backed papers shall be eligible to be accepted as security.

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 The procedure for and terms of crediting shall be established by the Board of
the Bank of Kyrgyzstan and made known to commercial banks.
The Bank of Kyrgyzstan may grant various types of credits to banks and,
correspondingly, set different interest rates on them depending on the type of the
credit issued.
The Bank of Kyrgyzstan shall not grant credit in the form of overdraft on
operations conducted between commercial banks.
The Bank of Kyrgyzstan shall create special reserves to offset potential losses,
according to the quality of assets and recognized as a deductible expense.
The Bank of Kyrgyzstan may on a contractual basis to provide funds to the
Islamic bank.
In emergency situations, in order to protect the integrity of the banking
system, the Bank of Kyrgyzstan may grant unsecured credit or the credit secured
by other types of assets, on terms established by the Board of the Bank of
Kyrgyzstan.
An emergency credit may be granted for a term of not more than six months.
This term may be extended by a decision of the Board of the Bank of Kyrgyzstan.
During the life of such credit, the Bank of Kyrgyzstan shall establish a special
regime provided for in the normative acts of the Bank of Kyrgyzstan in respect of
the borrower.

2.4. Foreign economic relations and currency operations

Currency regulation
The Bank of Kyrgyzstan shall be the state body for foreign exchange
regulation and shall perform this function through: issuance of normative acts
regulating the conduct of operations in foreign currencies; grant and revocation of
licenses to foreign exchange intermediaries including banks; supervision of their
activities in accordance with the legislation of the Kyrgyz Republic.

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International reserves of the Bank of Kyrgyzstan
For the purpose of meeting its obligations the Bank of Kyrgyzstan shall retain
a portion of its funds in foreign currencies and in other international assets, the
value of which is less vulnerable to change in international markets. Here, the
Bank of Kyrgyzstan on the terms specified by the Board of the Bank of Kyrgyzstan
shall have an international reserve consisting of gold and:
1) foreign currencies including those placed in the accounts of central and first
class foreign banks or other international financial institutions;
2) foreign exchange in the form of bank notes and coins;
3) any other internationally accepted reserve assets;
4) bills of exchange and promissory notes in foreign currencies accepted in
international transactions and paid in foreign currencies;
5) state securities issued or guaranteed by foreign governmental institutes in
their own currencies (or in the foreign currency) and paid in foreign currencies;
6) other bills of exchange and promissory notes issued by first class
international financial institutes provided that they are classified as proper
securities.
The Bank of Kyrgyzstan shall manage its own international reserves taking
into account liquidity and safety of reserve assets.
In order for the Bank of Kyrgyzstan to take out precious metals on its balance
sheet to place or sell international reserves abroad there shall be no need for
additional license. The order and terms of taking out and selling of precious metals
is determined by the Board of the Bank of Kyrgyzstan.

15
 Conclusion

The report on "the Role of the National Bank" was interesting to me because at
the moment it is the most important and actual problem for our country, as in the
study of this subject,I have considered and evaluated the following , which consists
of two chapters .

The first chapter contains :

In banking the term national Bank carries several meanings: especially in

developing countries, a Bank is owned by the state an ordinary private Bank which
operates nationally (in contrast to the regional or local level or even
internationally) in the United States, acting for a private Bank within a specific
regulatory structure, which may or may not work at the national level, under the
supervision of the office of the Comptroller of the currency. In the past the term
"national Bank" was not used synonymously with "Central Bank", but it is no
longer used in this sense today. Some Central banks may have the words "national
Bank" in their name; conversely if a Bank is named thus, is not automatically
considered a Central Bank. For example, the national Bank of Canada, Montreal,
Canada, is a privately owned commercial Bank. On the other hand, the national
Bank of Ethiopia is the Central Bank of Ethiopia and National Bank of Cambodia
is the Central Bank of Cambodia.

And, In the United States, the term "national Bank" originally referred to the
revolutionary era Bank of North America, later, First Bank of the United States, or
its successor the Second Bank of the United States. Everything is now non-
existent. In the modern U.S. the term "national Bank" has a precise meaning: a

16
banking Institute and managed by the Office of the Comptroller of the currency
("OCC"), the Agency within the Department of the Treasury, in accordance with
the Law of the National Bank , the inclusion of the word "national" in the name of
the Bank or the designation "national Association" or its abbreviation "NA" is a
required part of the distinguishing legal title of a national Bank, as in "Citibank, N.
A." many "state banks" chartered by the applicable state authority (usually the state
banking Department). The Federal Deposit insurance Corporation (FDIC) insures
deposits in national and state banks.

The second chapter contains: "the role of the National Bank" I was convinced
that the Bank of Kyrgyzstan shall own, use and dispose of funds, buildings,
constructions, equipment and other material values belonging to it.

The Bank of Kyrgyzstan shall have the right in cleaning up the debts before it,
to acquire any rights of the debtor in any form provided that these rights must be
implemented by the Bank of Kyrgyzstan as soon as possible, no later than two
years.

The Bank of Kyrgyzstan may not engage in activities that are beyond their
purposes to be the holder of shares or to participate in any way in the activities of
banks or other commercial organizations, to buy, rent or any other means of
acquiring ownership of any real property, except those cases when acquisition or
lease is essential to the conservation activities of the Bank of Kyrgyzstan and its
employees.

The Bank of Kyrgyzstan shall have the right to transfer or sell inventories,
which are obsolete, unusable or are not used to support the activities of the Bank of
Kyrgyzstan and its employees. The order of material values shall be established by
normative legal acts of the Bank of Kyrgyzstan. The government must ensure the
protection of the legitimate property rights of the Bank of Kyrgyzstan and shall not
have the right to confiscate or reduce their capital, as well as the Burden the
property of the Bank of Kyrgyzstan with obligations. The property of the Bank of
17
Kyrgyzstan, including the capital, cash is owned by the Bank of Kyrgyzstan and
cannot be encumbered with liabilities and (or) withdrawn from the Bank of
Kyrgyzstan without trial in accordance with the legislation of the Kyrgyz Republic.
The Bank of Kyrgyzstan takes measures to ensure the security of its activities and
ensuring its property and assets (including printing, storage and distribution of
banknotes) and the protection of employees. For these purposes the Bank of
Kyrgyzstan has the right to create special forces, as well as to acquire and use
weapons and special protection means.

When writing the report on the role of the National Bank of the Kyrgyz
Republic studied the special literature, the theoretical study of various authors and
articles .The objectives of the proposed themes of the report were:

1) To study of the terms "National" and "Central" Bank;

2) a description of the main theoretical aspects of the research theme, the

disclosure of goals, objectives and functions of the NB ;

3) review the practical application of the NB KR currency;

4) The relationships NB KR with other banks in the world.

As the initial information base materials involved theoretical studies of
various authors, textbooks and manuals, articles and Internet resources

Bibliography

1. Hixson, William F ., Triumph of the Bankers: Money and Banking in the

Eighteenth and Nineteenth Centuries , London: Praeger, 1993.
2. Kidwell, David S. and Richard Peterson , Financial Institutions, Markets,
and Money , 5th edition, 1993.

18
3. Galbraith, John K ., Money: Whence it Came, Where it Went , Boston:
Houghton Mifflin, 1995.
4. Greider, William , Secrets of the Temple , New York: Simon & Schuster,
1987.
5. Hammond, Bray , Banks and Politics in America , Princeton University
Press, 1957.
6. Knox, John J ., A History of Banking in the United States , New York:
Bradford Rhodes, 1903.
7. Dunne, Gerald T ., Monetary Decisions of the Supreme Court , New
Brunswick, New Jersey: Rutgers University Press, 1960.
8. Knox, John J ., A History of Banking in the United States , New York:
Bradford Rhodes, 1903.
9. Galbraith, John K. , A Short History of Financial Euphoria , New York:
Penguin Books, 1990.
10.Hammond, Bray , Banks and Politics in America , Princeton University
Press, 1957.

Articles:
11.Money Bill Goes to Wilson To-Day , New York Times , pages 1-3,
December 23, 1913.
12. Wilson Signs the Currency Bill , New York Times , pages 1-2, December
24, 1913.
13.Nussbaum, Arthur , A History of the Dollar , New York: Columbia
14.Phalle, Thibaut de Saint , The Federal Reserve: An Intentional Mystery ,
New York: Praeger, 1985.
15.Rolnick, Arthur J. and Warren E. Weber , The free banking era...
16.www.economic.kg
17. www.NBKR.kg

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