RUSSIA’S ROLE IN ESTABLISHING AND DEVELOPING MONGOLIA’S FINANCIAL CREDIT SYSTEM

Historians believe that Mongolia-Russia interstate relations were established in the early 17th century, with the two states first exchanging embassies in 1608, and since then have never ceased to develop. Back in the days of tsarist Russia and the USSR, contacts with Mongolia were always an integral part of the Eastern vector of foreign policy. Since the late 1700s, Urga (named Mongolia’s capital in 1911) began attracting Russian merchants and industrialists.

In the early 1800s, some of them began settling down in the city, leasing land, and building houses; over time, many set up trading companies in Urga and other localities, competing with Chinese merchants.

The second half of the 19th century witnessed a surge in the Russian capital flow to Mongolia, which brought about drastic changes to the existing system of monetary and credit relations in the country. Thriving trade growth encouraged Chinese and Russian merchants to establish the first joint banks in Mongolia, in particular, the Russo- Chinese Bank in 1895.

And soon — at the turn of the 20th century — Mongolia became a springboard for the struggle between the Russian Empire and China. Following the struggle of the Mongolian national liberation movement against the rule of Chinese-Manchu feudal lords, Mongolia declared its independence in December 1911.

As early as November 1912, the Russo-Mongolian Agreement was signed in Urga. By virtue of this agreement Russia was to help the Mongolian government in building up its armed forces, preventing Chinese colonisation and deterring the deployment of Chinese troops. It was also given extensive mandate to enhance the business of Russian merchants in Mongolia.

In late 1913, the Mongolian Prime Minister Tögs-Ochiryn Namnansüren paid an official visit to the Russian Empire. In the course of the meetings, the Mongolian government appealed to its counterpart for a loan to bolster the economy and strengthen the country’s financial credit system. Russia expressed its willingness to honour the request, provided that the Mongolian government hires a Russian advisor.

Thus, the position of the Russian financial adviser under the Mongolian government was established, and Sergey A. Kozin (later a prominent Mongol expert, Doctor of Sciences in Russia have always had friendly and mutually beneficial relations rooted far back in the past. In particular, Mongolia granted a number of preferences to Russia within its territory, while the USSR and Russia greatly contributed to Mongolia’s financial credit system.

At present, relations between the two nations continue to develop, and further economic cooperation could be enhanced by establishing strong ties between Mongolia and the Eurasian Economic Union (EAEU). The article surveys historical aspects of the development of Mongolia’s banking and financial credit systems as well as Russia’s role in this process, and emphasises the importance of Mongolia’s rapprochement with the EAEU.

Philology, Fellow of the Academy of Sciences of the Soviet Union) was the first to assume it in 1914.

The scope of work performed by the financial adviser was quite extensive. Sergey Kozin greatly contributed to shaping Mongolia’s budgetary system and tax policy. Thanks to his recommendations, revenue bases for the state budget were expanded, and foundations of financial control, accounting and reporting laid. At his suggestion, revenues from duties on different types of goods, trade and manufacturing were increased. For instance, the adviser elaborated ten rules that set deadlines for tax col-lection and their timely levying.

Besides, Sergey Kozin and his deputy Baron Pyotr Witte also suggested that the Mongolian Ministry of Finance should impose taxes on forest resources, pastures and farm-lands. At their initiative, the Ministry also began registering state property, enabling a centralised rent collection.

Kozin’s field of activity also included control over the expenses of the Russian loan (in 1913—1914 tsarist Russia granted loans worth 5.1 million roubles to Mongolia to im-prove its financial situation).

So, in the early 20th century, the financial diplomacy of tsarist Russia played a significant role in creating a positive image of Russia in Mongolia, and strengthening the Russian influence on its foreign and domestic policy. In the same vein, the financial support provided by the Russian Empire and Kozin’s efforts as financial adviser to the Mongolian government until late December 1916 largely laid the foundation for establishing Mon-golia’s financial credit system.

Back in the day, Mongolia still vigorously fought for its sovereign-ty. But the Russian Empire, fearing serious international troubles, was not in favour of Mongolia’s complete secession from China, so the trilateral Russia-China-Mongolia compromise agreement of 1915 (the Treaty of Kyahta) declared the autonomy of Outer Mongolia. Autonomous Mongolia (as the document termed it) was granted considerable freedoms, while the interstate nature of the Agreement opened up prospects for further struggle for independence. Russia and Mongolia’s coinciding interest greatly contributed to this struggle: by providing financial aid to Mongolia, the Russian Empire strived to strengthen its foothold in the country, while Mongolia deemed its cooperation with Russia an important means of weakening China’s influence.

With the support of the Russian Empire, the government of Autonomous Mongolia sought to drive out of circulation banknotes issued by the Chinese Da-Qing bank, silver saddle sycees, and, last but not least, Chinese coins. They were to be replaced by Russian credit notes and tsarist coins, while Da-Qing Bank was to give way to the Siberian Trade Bank. Seeking to develop the country’s financial credit system, the Mongolian government made numerous at-tempts to establish its own national bank, in particular the Mongolian National Bank in Urga (backed by the Siberian Trade Bank). However, due to lack of funds, human resources, and partly due to the Russian Revolution of 1917 and the subsequent Civil War, all these efforts failed.

The Mongolian Revolution of 1921 marked a pivotal moment in the country’s modern history. The People’s Government of Mongolia expressed its determination to forge friendly relations with all peoples and nations based on respect for the principle of equal rights. The Soviet government was the only one to heed this call at the time. In October-November 1921, Moscow hosted talks between the government delegations of Mongolia and Russia, and on November 5 the government of the Russian Soviet Federative Socialist Republic (RSFSR) and the People’s Government of Mongolia signed the Agreement on establishment of friendly bilateral relations.

On the same day, two protocols were subsequently signed — one on the RSFSR waiver of concessions and economic privileges of the tsarist government in Mongolia, and the other on legal cooperation. November 24 marked the third proto-col — the RSFSR granting a loan of 1.1 million roubles to the Mongolian government. Besides, Mongolia’s debt of 5.1 million roubles was cancelled. These protocols, hence, set the stage for further economic cooperation between the two nations and outlined its main axes in the long run. In particular, rendering aid to Mongolia and pro-viding various economic benefits, on the one hand, would make Mongolia reliant on Russia, and on the other hand, it would secure its future economic development in close tandem with that of Russia.

So, the USSR set about providing Mongolia with comprehensive assistance to develop a modern economy, including a financial system unfamiliar to feudal Mongolia. In 1923, Mongolia and the USSR entered into a landmark trade agreement — the first equitable arrangement in the history of international relations between the two nations. Since then, the Soviet state-run trade represented by the Siberian state trade office (“Sibgostorg”) and that of the Far East (“Dalgostorg”) began operation in Mongolia.

On 16 October 1923, the RSFSR Council of People’s Commissars took the decision to exempt from customs duties and tax-es the export of livestock, wool, fur and fish from Mongolia, a move that served as yet another driver of trade growth between Mongolia and the USSR, as well as a means of strengthening the revenue base of the Mongolian budget.

Shortly after the Mongolian government undertook another attempt to introduce its own banking system in the country, which turned out to be a success: in 1924, a joint Mongo-lian-Russian bank was established, operating on a shareholder basis and involving the Russian capital, — the Trade and Industry Bank of Mongolia (Mongolbank). The initial stated capital was set at 260,000 gold roubles. The main shareholders were the Ministry of Finance on the part of Mongolia and the Ministry of Finance and the State Bank on the part of the Soviet Union. Each shareholder bought shares issued by Mongolbank worth 100,000 gold roubles to form the authorised fund.

The Bank was vested with the task to promote the development of trade, industry and other sectors of the national economy, to introduce its own national currency, to improve and manage monetary circulation, and also to enhance economic ties between Mongolia and the USSR. Mongolbank remained a joint- stock Mongolian-Soviet bank almost until mid-1950s.

In 1954, with Mongolia’s financial credit system becoming stronger and with the view to foster further development of its nation-al economy, the USSR government donated its share of participation to Mongolbank. In this vein, it was decided to restructure the joint-stock Mongolbank into the State Bank of the Mongolian People’s Republic. The USSR also rendered extensive aid in setting up the Mongolian national currency, i.e. the tögrög (tugrik) issued in 1925.

The State Bank and the national currency now became the most vital attributes of modern Mongolia’s state sovereignty. Mongolia’s admission to the Unit-ed Nations in October 1961 con-tributed to its broader international political and economic interactions (as of 1966, Mongolia established diplomatic relations with 30 nations across the globe and served on various committees and other UN bodies). Moreover, in 1962, Mongolia became a member of the Council for Mutual Economic Assistance (CMEA). Its membership in such international institutions was largely due, inter alia, to the significant support of the Soviet Union. In 1964, the Mongolian People’s Republic became a member of the International Bank for Economic Co-operation (IBEC,) and in 1971, it was admitted to the International Investment Bank (IIB).

Membership in CMEA, IBEC and IIB turned out to be rather advantageous for Mongolia’s economy. And loans received from international financial institutions had played a major role in boosting industry and further enhancing the country’s modern financial credit system. In 1960—1980, political and eco-nomic cooperation between Mongolia and the USSR flourished swiftly, with two visits of Leonid Brezhnev, General Secretary of the Communist Party of the Soviet Union, to Mongo-lia (in 1966 and 1974) greatly benefited to these contacts.

In 1966, the USSR and the Mongolian People’s Re-public signed the Treaty of friendship, cooperation and mutual assistance, and 1973 marked an agreement on establishing the Soviet-Mongolian Joint Mining and Processing Enterprise “Erdenet.” Within several five-year plans, Mongolia built (chiefly using USSR loans) and put into operation large strategic facilities. It was the Soviet Union that enabled Mongolian economy to develop entire sectors and established the country’s export base. At the time, “Erdenet” alone accounted for 40 per cent of Mongolia’s GDP and more than 30 per cent of public revenue.

But since the early 1980s, the mounting credit burden began to im-pact Mongolia’s economic growth — in the mid-1970s, Mongolia’s debt to the Soviet Union totalled about 2.2 billion roubles, and in 1989, it had already swelled to 9.7 billion transfer roubles.

While the economic landscape of the Soviet Union was growing increasingly strained, it found itself seeking re-payment of debts, including from the Mongolian People’s Republic. The latter, however, had no feasibility to pay them out. With that said, both sides realised that unsettled interstate debts were a serious hurdle in further development of economic relations.

Debt settlement talks began in 1990, with the historical background of the debt and the harmonisation of the debt conversion ratio in transfer roubles into US dollars topping the agenda of the most contentious is-sues. And the debt in this case was denominated in a non-existing currency, resulting in a decision to con-vert it into an actual monetary unit. The talks concluded in 2003 by sign-ing an agreement under which the Russian Federation cancelled 97 per cent of Mongolia’s debt.

Hence, the settlement of the so-called “old debt” to the USSR marked a new chapter in bilateral relations and gave a fresh impetus to the subsequent development of Mongolia’s financial credit system. As part of the task to enhance comprehensive cooperation between the nations, authorised officials of Soviet state bodies and ministries, pursuant to the government’s decision, were engaged in the economic unit of Mongolia’s government from the mid-1970s to the end of 1989.

Their activity was crucial in broadening interstate trade and economic ties as well as regional cooperation, and in improving Mongolia’s financial credit system. But with time as Mongolia’s economy was wholly orientated to-wards the Soviet economic system, it later encountered a number of particularly serious challenges. Yet, one cannot deny the vital and positive role that Russia has played in shaping and improving Mongolia’s entire financial system. At present, Mongolia-Russia relations, including trade and economy, have a high potential for strengthening, and history proves that over the past centuries a firm foundation has been laid for their further development. And a key area of such development may become Mongolia’s cooperation with the Eurasian Economic Union, which over the past decade has proved its efficiency in many respects.

Today, when the EAEU is turning into a self-sufficient hub of the emerging multipolar world, many in Mongolia are in favour of developing relations with this economic integration organisation. Major efforts have been under-taken by Mongolia and the Eurasian Economic Commission (EEC) over the past years to establish cooperation be-tween Mongolia and the EAEU.

Mongolia has currently obtained Observer State status at the EAEU, the Union and Mongolia have finalised a temporary free trade area agreement, which is due by the end of 2024. At the out-set the agreement is expected to cover a limited range of industrial and agricultural goods — about 400 items. In the future, the parties may to expand to a full-scale free trade agreement.

Therefore, these trade policy tools will create new opportunities to step up Mongolia’s trade and eco-nomic cooperation with both Russia and the EAEU.