Uzbekistan will allow Uzbek citizens and companies to buy and sell foreign currency at the market rate starting from September 5, the central bank announced on September 4, citing a decree signed by the president.
The move would abolish the black market rate of the Uzbek som, which has stood in the way of foreign investment. That will confirm Uzbek President Shavkat Mirziyoyev’s status as a reformist leader dismantling the legacy of the late autocrat Islam Karimov, whom Mirziyoyev succeeded a year ago.
The black market rate of the som is expected to converge with the official rate at around UZS7,800-8,000, once the central bank sets its official rate at the market rate. While the official rate of the som is currently set at UZS4,210 per dollar, the bourse market rate and the black market rate trade at UZS7,700-UZS7,800 to the dollar. The government shed regulations in July that required exporters to sell a quarter of their foreign currency at the official rate. At the moment, importers can only buy currency at the unofficial rate.
Uzbekistan has already granted permission to a limited number of commercial banks in the country to trade the Uzbek national currency at the market rate as part of a pilot project to usher in the introduction of the floating exchange rate.
The black market rate has also long fueled rapid inflation in the country. According to official statistics, the inflation rate in 2016 was 5.7% compared to 5.6% in 2015, with a targeted inflation rate projected at 5.7-6.7%. However, independent analysts estimate inflation to be in the double digits in reality.
A sharp increase in official alcohol prices by 16%-19% at the beginning of 2017 indicated the ongoing double-digit inflation problem. In a similar example, the country saw a 35% hike in government-set fuel prices in October.
The Central Bank of Uzbekistan increased its refinancing rate in June by as much as 5 percentage points to 14%, changing the rate for the first time since January 2015. The central bank’s decision was influenced by “growing inflationary risks” and the need to ensure stable consumer prices, according to a statement from the regulator. The move shows the central bank's willingness to acknowledge the country’s inflationary troubles, which Uzbekistan has been facing for the last couple of years.
The International Monetary Fund described Uzbekistan's reserves as "ample", following a visit to the country this month. They should be sufficient to allow Tashkent to carry out its currency reforms. Uzbekistan's gold and foreign currency reserves stand at about $20bn, covering two years of imports.