Uzbek authorities are rumoured to be planning to ban the use of cash dollars by the population next year, which could force citizens to convert their greenbacks into sums. The move, if implemented, would be likely to drive official dollar transactions into the shadows, encourage the use of the hawala (informal transfer) system and move significant amounts of money further away from the formal banking system, boosting the already thriving black market, local observers believe.

The uzmetronom.com website, believed to be linked to the Uzbek security services, reported on December 14 that Uzbekistan had been engulfed “by rumours about the government’s intention to change the system of the circulation and use of cash dollars by individuals from January 1, 2016, up to a total ban on or forced conversion of foreign currency held by the population at the rate set by the central bank”. It added: “The rumours also have it that similar measures will concern currency transfers from abroad.” 

It explained that the measure was indirectly confirmed by a sharp fall of the dollar’s exchange rate on the black currency market and by the fact that black market dealers were only buying dollars. Currency dealers were buying the US currency at UZS5,200 on December 14 against around UZS5,600 a week ago, a more than 7% apprecition. The official exchange rate set by the central bank is UZS2,780.05 to the dollar.

“Rumours about certain government plans about ‘currency bans’ emerge in Uzbekistan not for the first time but they have not a single time materialised into a government resolution or presidential decree,” the website noted.

At the same time, such rumours help local currency dealers and vested interests behind the black market buy out cash dollars at reduced rates from people who resort to panic selling to sell them at higher rates later, a Tashkent-based analyst suggests. “I personally haven’t heard such rumours but if grounded the situation may turn into a disaster,” the analyst told bne IntelliNews on condition of anonymity. “I think dollars will still be in circulation on the black market as those controlling and benefiting from the black currency market will not yield their positions easily,” the analyst explains. “It looks like a big game and I think the rate will increase soon.”

The analyst dismisses the “measures” to convert money transfers from abroad, such as via Western Union and MoneyGram,  into sums as “baseless rumours” because “as long as there is the black currency market, it is impossible to implement these kind of measures”.

“I don’t think those transfers will be issued in sums because in that case the country will lose more,” the analyst says. “That move may deliver a heavy blow on the economy,” he explains, referring to $1.9bn in money transfers from Russia alone in the first nine months of 2015 against $4.6bn in the same period of 2014. Uzbekistan, as well its impoverished neighbours Tajikistan and Kyrgyzstan, sends millions of labour migrants to Russia and the weaker ruble has depressed the dollar value of their remittances.

Countries, like European ones, India and Pakistan, which convert foreign transfers into the local currency, do not have a black currency market, the analyst notes.

In any case, “they will find ways of transferring dollars by sending them through friends, bringing it home on themselves, sending it with flight attendants or resorting to the hawala system”, the analyst suggests.

Kazakh tenge

While Uzbekistan’s currency is strengthening, neighbouring Kazakhstan’s national currency, the tenge, lost over 5.2% on December 14 as the price of Brent dipped below $38 per barrel in London. The drop shows that the National Bank of Kazakhstan, the central bank, is sticking to a free-float policy for the tenge, Nurlan Ashinov, an analyst at the Almaty-based investment bank BCC Invest, explains to bne IntelliNews. “The tenge has reacted to the price of oil.”

Unlike the ruble – the currency of Kazakhstan’s largest supplier, accounting for a third of imports – the tenge is responding to the oil price movements with a lag, the central bank governor, Daniyar Akishev, told journalists on December 9. “The price of oil changes, so does the exchange rate, but these changes are not always synchronous,” he said. “The price of oil does not influence our currency market minute by minute.”