Bank of Irad

The Bank of Irad (Iradi: Irad Banky) is the monetary authority of the Irad Special Economic Zone (ISEZ). It issues the Iradi som, holds the US dollar reserves that back it, licenses and supervises the commercial banks, and operates the Bank of Irad Clearing House, the zone's interbank payment system. It was established by the Banking and Commercial Currency Act of 1993, passed by the interim Territorial Legislature of Irad during the US territorial administration, and has its head office in Talas. Its chairman since 2010 has been Azamat Temirov.^[1][2]

Because the US dollar is legal tender in Irad and is used for most contracts, savings and foreign trade, the bank has little room for independent monetary policy. Its main task is to keep the som at its fixed rate against the dollar. Unlike most central banks, it does not hold the government's main accounts, which are kept at Talasbank, and it has no part in the escrow arrangements for export revenue, which the Irad Foreign Trade Escrow Authority supervises.^[3]

History

Establishment (1993)

In the Soviet period, banking in the Iradi SSR was carried out by the republican offices of the Soviet state bank and the specialized state banks. After the Socialist Republic of Irad declared independence in October 1991, the breakdown of the ruble zone and inflation above 1,000 percent wiped out most savings, and banking had largely stopped in Talas by the time of the siege in 1992.^[3]

The Organic Act of the Territory of Irad made the US dollar legal tender alongside any local currency the territory chose to issue. The territorial administration chose to rely on the dollar rather than introduce a full national currency at once. The Banking and Commercial Currency Act of 1993 made the dollar legal tender, authorized a local currency, the som, for small payments and public-sector wages, chartered Talasbank as the territory's main commercial bank, and created the Bank of Irad to issue the som and regulate banking.^[2] The act adopted currency-board rules: the bank may issue som only in exchange for dollars at the fixed rate and must hold dollar reserves at least equal to the som in circulation. The bank opened in the autumn of 1993 in the former Talas office of the Soviet state bank, and put the first som notes into circulation in late 1993. In the first months both dollar banknotes and som notes were flown in to Talas Air Base.^[4]

Territorial period (1993–2006)

Under the 1993 act the chairman and the four other members of the bank's board were appointed by the Governor with the consent of the Territorial Senate. As at the Foreign Trade Escrow Authority, an observer from the office of the US High Commissioner attended board meetings. The bank held its reserves in correspondent accounts with banks in the United States.^[4]

The bank licensed the commercial banks that opened during the investment boom of the late 1990s, most of them small and based in Talas or Nurzhan. It set up the clearing house in 1996, which at first settled checks and batch payments once a day between the banks' settlement accounts at the Bank of Irad.^[5] The som was accepted for wages, utility bills and retail payments, but dollars remained dominant in savings and in any transaction of size, and studies of the period describe the territory as one of the most fully dollarized economies in the former Soviet space.^[3]

Crisis of 2006–2007

After the United States withdrew from the Alimbekov-Baker Treaty on 3 December 2006, depositors rushed to convert som and withdraw dollars, and Talasbank limited cash withdrawals for three weeks in December. The bank met conversions from its reserves and the fixed rate held at its counters, but the som traded at a discount in the informal markets of Talas and Nurzhan in the first months of 2007.^[4] American correspondent banks closed or restricted Iradi accounts in early 2007, citing the territory's uncertain legal status, and the bank moved its reserves and correspondent business to banks in Almaty and Istanbul.

During the Second Iradi Civil War, the bank continued to operate in Talas under its board while the cabinet of the Democratic Republic of Irad and Toktarov's emergency administration in Nurzhan contested authority. In the spring of 2007 the cabinet drew on the reserves held in Talas to pay salaries and its forces, in breach of the currency-board rules. Its head office closed for several days after the storming of Talas on 4 June 2007 and reopened under the ISEZ administration after DPI forces took the city that summer. By then, with part of the reserves spent and part frozen in American accounts, the reserves covered only about 60 percent of the som in circulation.^[3]

Since 2008

In 2008 the ISEZ administration reconstituted the bank under a new statute, which kept the currency-board rules and replaced the territorial provisions on federal observation. The chairman is now appointed by the Governor and confirmed by the Mejlis for a six-year term.^[6] The statute also reset the fixed rate from 5 to 8.40 som to the dollar with effect from 17 March 2008, so that the remaining reserves again covered the som in full. The devaluation cut the dollar value of som savings, wages and pensions by about 40 percent, and the informal discount on the som disappeared within months.^[6] Temirov, a former World Bank consultant on Central Asian financial-sector projects, joined the bank as deputy chairman in 2007 and became chairman in 2010.^[1]

Under Temirov the bank modernized the payment system. A real-time system for large dollar payments was introduced at the clearing house in 2009, backup sites were set up in Nurzhan in 2010, and som payments were added to the real-time system in 2012, the year Talasbank and Attelkom launched SMS-based payments for rural customers.^[5] The bank also oversees the correspondent banking arrangements in Almaty and Istanbul on which Iradi banks depend for foreign payments.^[1]

Functions

Currency issue and reserves

The bank is the sole issuer of som notes and coins. Under the currency-board rules it cannot lend to the government or buy government debt, and the som in circulation is covered by dollar reserves held abroad with correspondent banks. The bank's annual report gives the reserve cover but not the location of individual holdings. Som accounts are used mainly for public-sector wages, utility bills and retail payments; most deposits, loans and commercial contracts are in dollars.^[1]

Banking supervision

The bank licenses commercial banks, microlenders and currency exchange offices in the ISEZ, sets reserve and capital requirements, and inspects the banks. Its supervision is dominated by a single institution: Talasbank holds about 60 percent of commercial deposits in the zone. Smaller banks and microfinance institutions, among them the Transoxiana Microfinance Fund, serve traders, farmers and households.^[7]

Payments

Commercial banks keep settlement accounts with the Bank of Irad, and the clearing house settles payments between them in both dollars and som, including salaries, pensions, tax and customs payments. It handles payments inside the ISEZ only. Foreign payments are settled through correspondent banks, because Irad's unresolved status limits its access to international payment systems.^[5]

Relationship with other institutions

The division of financial functions in the ISEZ dates from the territorial statutes of 1993–1994:^[3]

• Talasbank holds the treasury and payroll accounts of the ISEZ government and the export escrow accounts, and is supervised by the Bank of Irad as a commercial bank.
• The Irad Foreign Trade Escrow Authority registers export contracts, audits the escrow accounts, deducts royalties and duties, and administers dollar reserves set aside to guarantee imports of fuel, grain and medicines. These reserves are separate from the Bank of Irad's currency reserves.
• The Bank of Irad handles payments from released escrow funds only once they move to exporters' accounts at other banks through the clearing house.

Limitations

Because Irad has no recognized sovereign status, the bank is not a member of the International Monetary Fund or the Bank for International Settlements, and the ISEZ has no sovereign credit rating. The currency-board rules mean that the bank cannot act as a lender of last resort beyond its excess reserves, a constraint that analysts noted during the run of December 2006.^[3] The bank has no branches in the Autonomous Tribal Regions, where trade is conducted in dollars, som, barter and livestock, and herders who sell to ISEZ buyers are usually paid through Talasbank.

Criticism

The World Bank and independent analysts have noted that Talasbank has not published full audited accounts since 2008 and that the ultimate owners of the holding companies that control it have not been disclosed. Opposition commentators argue that the Bank of Irad, as its supervisor, has not enforced disclosure on a bank whose shareholders investigative reports have linked to business associates of the Toktarov family. The Bank of Irad says that the banks it supervises meet the disclosure rules in force in the ISEZ.^[3][8] In 2024, after Governor Erlan Toktarov withdrew from public view, the bank stated that the payment system and the fixed rate were unaffected.^[9] In 2026, as dollar cash grew scarce and bazaar money changers quoted 11 to 12 som to the dollar against the official 8.40, the bank denied that a second reset was planned and called the street rate "speculation in a small cash market". In September and October 2026 it also warned that Tulparcoin was not legal tender and that payment services offered in the coin through the Tulpar app had no licence (see Iradi som). Business groups credit it, with Talasbank, for keeping the payment system working through the crisis of 2006–2007.^[7]

The populist commentator Jason Ilyasov has called for cryptocurrency to be made legal tender alongside the dollar and the som. The bank's 2023 annual report restates that only the dollar and the som are legal tender in the ISEZ.^[1]

See also

• Economy of Irad
• Iradi som
• Talasbank
• Irad Foreign Trade Escrow Authority

References

1. ^ Bank of Irad (2023). Annual Report. Talas.
2. ^ Territorial Legislature of Irad (1993). Banking and Commercial Currency Act. Territorial Gazette, Talas.
3. ^ World Bank (2023). Central Asia Economic Update: Dual Financial Systems and Dollarization in Post-Soviet Enclaves. Washington, DC.
4. ^ Central Asian Geopolitical Review (2014). 'Dollars without a Sovereign: Escrow Banking in Irad since 1994.' Vol. 10, No. 3, pp. 61–88.
5. ^ Bank of Irad (2013). The Payment System of the ISEZ: Development and Operation. Talas.
6. ^ Territorial Legislature of Irad (2008). 'Bank of Irad Act.' Official Gazette of Irad. Talas.
7. ^ Chamber of Commerce and Industry of Irad (2023). Banking and Finance Directory. Talas.
8. ^ Central Asian Geopolitical Review (2021). 'Who Holds the Keys? Escrow, Oil and Power in the ISEZ.' Vol. 27, pp. 58–79.
9. ^ Talas Herald (2024). 'Escrow Payments Continue, Officials Say.' Talas.