Before 1924 Mongolia lacked its own banks and currency. Mongolians bartered, using such commodities as livestock, tea, and salt for exchange, or such foreign currencies as the United States dollar, the Russian ruble, the British pound, and the Chinese Mexican dollar (or, Yanchan, then a standard currency in coastal China) in commerce. Chinese and Russian banks offered credit, as did monasteries and private moneylenders. The government began to transform this chaotic monetary situation with a series of reforms, starting with the establishment of Mongolbank, or the Mongolian Trade-Industrial Bank, in June 1924. Mongolbank was founded as a Mongolian-Soviet joint-stock company. In February 1925, the tugrik was made the official national currency, and it was slowly introduced into circulation over the next three years. In April 1928, all other currencies were withdrawn from circulation. In 1929 the government drove private moneylenders out of business by establishing a monopoly on foreign trade and then outlawing private lending.

The establishment of a stable financial and monetary system, with a centralized bank controlling the national currency flow, permitted the government to introduce a First Plan in 1931. In 1933 additional banking reforms strengthened the position of Mongolbank in the economy. All state and cooperative enterprises were required to keep their accounts with the bank, and cash transactions were limited effectively to the household sector of the economy. Thus Mongolbank, which was firmly under government control, was able to monitor and to supervise the business transactions of all enterprises. In April 1954, the Soviet Union handed over its shares in Mongolbank, which was renamed the State Bank of the Mongolian People's Republic. In 1960 the bank's lending activities were restricted to state, cooperative, and private enterprises for which investment funds were approved by the national budget.

In the late 1980s, the State Bank granted short-term credits to cooperatives and state enterprises and long-term credits to the economy's industrial sector. Government borrowing from the bank was limited, although the limits were not always followed. The State Bank worked closely with the Ministry of Finance, and it was governed by a central board. In 1984 the State Bank had more than 400 offices and branches throughout the country. The State Bank, as the central bank, conducted currency transactions with foreign countries and had agent relations with about seventy foreign banks. Insurance was offered by the State Directorate for Insurance, or Mongoldaatgal, which was under the control of the Ministry of Finance.

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Source: U.S. Library of Congress