In 2011, Mongolia’s economy grew by 17 percent [1] and attracted investors from all around the world. At the time the economy was booming due to the mining industry. Since that time, all the problems in Mongolia arose. Mongolian government officials, who had so much financial power, and average Mongolian people, who know nothing about economics, dug themselves into a hole by making several big mistakes such as nationalizing mining, which is the only real income from the foreign world to them. This lead to banks giving out mortgage loans with artificially low interest rate for the sake of residents who don’t have an apartment in Ulaanbaatar, a capital city of the country. Mongolia is now doomed to go bankrupt. In this article, I will focus on mortgage loans which was created by Central Bank of Mongolia and discuss how it affected the economy as a whole.

During the winter, Ulaanbaatar’s biggest problem is air pollution, which is caused by coal-burning in yurts, a portable round tent which doesn’t have central heating and water in itself. Half the residents of the capital city of Mongolia live in yurt and their wish was and still is to move out of where they live to make their living conditions better.

In June of 2013, government of Mongolia created a mortgage program with the help of Central Bank of Mongolia, which was supposed to be independent of anyone and anything.[2] The plan was to cut interest rates on mortgages to 8 percent which was 16 percent at market rate. Government officials said that the policy of housing was intended to support average Mongolian people who can’t afford an apartment with their monthly income.[3] If you know about the world financial crisis of 2008, you may find that this government policy is a mini version of that. Let me explain what is happening in Mongolia.

Commercial banks, that were supported or encouraged to give out loans with low interest rates by a central bank, had expanded credit of subsidized mortgages with a repayment rate of 5 and 8 percent. In this situation, a function of commercial banks is just to pass out the credit issued by the central bank to the borrowers as if they are branches of commercial bank. From June of 2013 until today, there are 90,000 people who received state-financed mortgage loans and the total mortgage credit is estimated at 3 trillion Mongolian tugriks.[4] Money which equals to one fourth of total amount money in the economy has flowed into economy through the credit expansion. This additional credit flow stimulated the economy.

Businessmen, who thought that a construction business was profitable because of the belief that there would be enough demand, has been working willingly to make a profit. They borrowed for capital projects. In the beginning, projects seemed profitable. Businessmen increased demand for production materials and labor, in turn their prices increased. Which lead to an increase in prices of consumption goods. In order to make it clearer, I will use an explanation by Austrian economist Ludwig von Mises on how prices increase due to an excessive money supply which is inflation in term.

Prices are going up because there is an additional quantity of money, asking, searching for a not-increased quantity of commodities. And the newspapers or the theorists call the higher prices, “inflation.” But the inflation is not the higher prices; the inflation is the new money pumped into the market. It is this new money that then inflates the prices. And the government asks, “What happened? How should one man know? How should I, the man in the department of finance, know that this additional money is really spent and that this spending must raise prices because the quantity of goods did not increase?” The government is very innocent. It doesn’t know what happened, you know, because this happened in another department of the government. And the governments try to find somebody who is responsible—but not the government. They consider the man who asks for higher prices responsible. But he must ask for higher prices because there are now more people wanting to buy his produce, you know. He has 100 units to sell each at 5 pieces of money. And now people are coming—not with 500 but with 600 pieces of money in their pockets—and the buyers must, therefore, in order to prevent other men from getting the things they want, pay higher prices. Now we have the inflation.[5]

Now, every company engaged in economic activity are in danger of going bankrupt due to the fact that entrepreneurs expected the boom to last forever. Almost everyone expanded their business by getting loans and spending their revenue on something such as a technology to increase an output which creates excessive supply in a market. Meanwhile, people giving a certain part of their income to pay a mortgage loan is having a big impact on consumer good companies. It means that high supply and low demand are intersecting one another. As for a construction sector, due to a high cost during the time of boom, the companies cannot sell their apartments at a low price to create a demand. Also, of course, there has been massive bribery for land, which was a one of the biggest part of cost. It is not official but it has been reported by real estate companies and Mr. B.Lkhagajav, President of the Mongolian National Chamber of Commerce and Industry (MNCCI) that there are about 30000-40000 empty apartments in Ulaanbaatar.[6][7] On the other hand, commercial banks, as you may have noticed, are having a hard time collecting debts mostly from construction and mining companies. Because loan payments by everyone related to construction sector is not sufficient enough. It is said by government officials that total estimated worth of bad debt of commercial banks in Mongolia is 1.8 trillion tugriks [8], which is a huge number for a small country. Meanwhile, the general increase in price, the result of inflation has been destroying savings and worth of money. According to the reports of the Central Bank of Mongolia, one US dollar equals to 1432.98 Mongolian tugriks in June of 2013. As of today, 2404.49 Mongolian tugrik is equal to one US dollar. It means that Mongolian official currency has lost 68% of its value against the US dollar (41.5 percent against Euro, 46 percent against Yen, 38 percent against Pound, 51 percent against Yuan).[9] Everyone, who owns tugriks and has savings in tugriks, has lost almost half the wealth that they had in the form of money.

This is the reason why a famous economist from US in the 20th century Henry Hazlitt said that “All government expenditures must eventually be paid out of the proceeds of taxation and inflation itself is merely a form, and a particularly vicious form, of taxation”.

In the free market system without a centralized monetary authority, which is based on competition, businessmen, whose fate are in their hands, would not make the exact same forecasting error at the same time. There wouldn’t be any mal-investments or business decision errors if the government hadn’t created the subprime mortgage credit, which is the source of the housing boom. All the disasters will be over once a central bank stops financing the mortgage credit, which will make a huge strike for everyone in a country. In order to postpone the inevitable consequence of the policy, central banks must keep issuing credits and the prices will rise even more as a result of this action. This is happening in Mongolia right now. Even the situation is worsening day by day, the Government and the Central Bank of Mongolia has been financing a mortgage credit with 30 billion tugriks each month from October of last year, according to reports of officials of Central bank of Mongolia.[10]

Soon Mongolians will face the reality. There isn’t any capital left but money issued by the Central Bank. It is worth remembering that paper money is not wealth and people use money to exchange their products and services. Money is not a thing declared by a government to be legal tender but whatever people choose to use as a medium of exchange. This inflationary action originated from the fiat money system, which has become so powerful that it can lead people to buy things that they don’t need and can bring a barter system back even in these times. This situation happened so many times in so many countries in the history, from Ancient Rome to Weimar Republic. Rome didn’t “collapse” in a day. An organization, as well as an individual, that can influence everyone in a society is an enemy of freedom by nature. By organization I mean a government and a central bank. The problem is that people don’t learn from history.

It was an economic intervention by the government that started everything in Mongolia. The government can borrow from China and the IMF to settle the matter in the short run as it has been said. However in the long run, there will be nothing but just a debt, a very huge one. It is no secret that all the debt will be paid out of taxpayers. But the most ludicrous thing is that most people in Mongolia still demand that government intervene in economy by supporting not only a subprime mortgage credit but also any other regulations on a market. They ask politicians to rescue the economy while encouraging the root of all evil at the same time. Mongolia is now doomed to ruin.


On 24th of May, it was revealed by a committee of investigation on Central bank of Mongolia that Central bank of Mongolia had been directly giving business loans with a rate of 0.89% (average rate of business loan in Mongolia is 22%-25%) to some 45 companies suspected of having a deeply connection with political elites.[11][12] Also it was announced there are some more illegal financial activities in which Central bank had been involving. Fundamentally, there is no difference between ones who got a subsidized mortgage credit and companies that were given a loan with low rate. Although both sides benefited from a direct loan by Central bank, N.Zoljargal, the former president of the Central bank, is being heavily blamed by a mass for doing a favor for people in power. This is what is called hypocrisy.


  1. МУ-н эдийн засгийн улирлын тойм: 2011 оны 11-р сар”,, 2011.11.08.
  2. Орон сууцны ипотекийн зээлийн ерөнхий журам батлагдлаа”,, 2013.06.14.
  3. З.Энхболд: Ипотек бол ажилтай бүхнийг байртай болгодог зээл”,, 2012.03.05.
  4. Ипотек саадгүй хэрэгжихэд сар бүр 60 орчим тэрбум төгрөгийн санхүүжилт шаардлагатай”,, 2017.05.19.
  5. Bien Greaves, Bettina (2010). Ludwig von Mises on Money and Inflation: A Synthesis of Several Lectures. Ludwig von Mises Institute. ISBN 9781933550756.
  6. Эзэнгүй орон сууц 30 мянга гаруй байна”,, 2017.02.17.
  7. Б.Лхагважав: Зарагдаагүй 40 мянган байрыг хот худалдаж авбал эдийн засгаа аварна”, 2015.11.03.
  8. Б.Түвшинтөгс: Актив удирдлагын компани байгуулснаар банкны чанаргүй зээлийн асуудлыг шийднэ”,, 2017.05.15.
  9. Монголбанк-аас зарласан тухайн өдрийн ханш”,, 2017.05.27.
  10. Ипотекийн зээлийг Засгийн газар, Монголбанк хамтран сард 25 тэрбум орчим төгрөгөөр санхүүжүүлнэ”,, 2017.04.07.
  11. Т.Аюурсайхан: Авсан нь 3 дахин ашигтай ажиллаж, зээл олгосон Монголбанк үлэмж их алдагдалд оржээ”,, 2017.05.25.
  12. Монголбанк 0.89 хувийн хүүтэй зээл олгож байжээ”, 2017.05.25.




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