The damage wrought by international sanctions on the ruble is sowing varying levels of alarm in currency markets in Kazakhstan, Kyrgyzstan, and Tajikistan, all of whose economies are strongly tied to that of Russia. Uzbekistan appears to be holding firm.
These reverberations come just as the countries, which include some of Russia’s most loyal strategic partners, were struggling to get back on track following the tumult caused by the COVID-19 pandemic.
In Kazakhstan, officials pleaded with the public not to succumb to panic, thereby possibly achieving the opposite result.
“We need to keep an eye on developments. At the moment, the exchange rate may be volatile,” deputy National Economy Minister Timur Zhaksylykov told a session of parliament on February 28, according to Vlast news website. “It is better not to adopt any hasty erroneous maneuvers.”
Earlier in the day, however, the National Bank announced that it was postponing currency trading on the local stock exchange for several hours as a precaution.
“These measures are temporary, and they reflect the high degree of uncertainty and the need to minimize pressure from external geopolitical factors on the foreign exchange market,” the regulator said in a press release.
It said the postponement could be rolled over in the event of persisting uncertainty.
Retail banks have been acting unilaterally to avoid a run by clients. One, Jusan Bank, stopped clients from withdrawing money from their foreign currency-denominated accounts. Another, the local affiliate of Russia’s largest bank, Sberbank, had by some accounts stopped clients from making any withdrawals at all, although the lender said otherwise in its communications with customers.
As of lunchtime on February 28, the National Bank had set the tenge at a rate of 467 to the dollar, up from around 430 in the middle of last week. In practice, it was all but impossible to buy foreign currency at most exchange offices in Almaty and Nur-Sultan, the country’s two main cities. By the end of the day, some in Almaty were exchanging a dollar for 500 tenge, however.
There was similar lack of opportunity for exchanging money in Uzbekistan. A representative for one of the country’s largest banks, Turon Bank, told Eurasianet that trading had been stopped as a temporary measure, but that it would resume on March 1.
Another Uzbek bank, Ipak Yuli, announced that it was for unstated “technical reasons” temporarily halting the sending of money via the Russian-owned wire transfer company Unistream. Transfers made via Sberbank have also been temporarily suspended, Ipak Yuli said.
Another major domestic bank, Hamkorbank, made the same announcement about payments made through the Sberbank online application last week.
Uzbekistan will be looking to its substantial reserves to give it strong protection against wild fluctuations. As of January 1, the Central Bank held 361 tons of gold worth an estimated $21 billion. It also held $13 billion in foreign currency reserves.
In Kyrgyzstan, as a rule of thumb, the som typically falls and rises in sync with the ruble. The impact of the dollar’s upward pressure in Russia was immediately noticeable from the rates that exchange offices in Bishkek were offering. At the start of the morning, some were offering to buy dollars around 93 som. By lunchtime, this had jumped up sharply to almost 100. The official rate was fixed at 89.1 to the dollar.
The Kyrgyz National Bank tried to play down the broader impact of sanctions aimed at Russia’s financial system.
“Most commercial banks in the Kyrgyz Republic are connected to the SWIFT system either through the National Bank or directly, so [there is no risk of] individual banks being affected because of Russia being disconnected from SWIFT,” the regulator in Bishkek said in a statement.
Gulzhan Abdrakhmanova, a 70-year-old pensioner from Bishkek, told Eurasianet that she sees grim consequences from this turbulence since all her family earn their income in som. For the most vulnerable in this import-dependent nation, devaluation will be a heavy blow.
“Every year, groceries and everything else are becoming more expensive, but pensions have not increased. My [monthly] pension is 7,000 som [$74],” Abdrakhmanova said.
The worst pain will be felt by people reliant on salaries earned by relatives in Russia.
A hospital worker in Bishkek told Eurasianet on condition of anonymity that her monthly salary is only 4,300 som ($45), which means that her husband has been forced to go and find work in Russia.
“I’m following the exchange rate because my husband is in Moscow. I’m very worried. It isn’t worthwhile for him to work there now. He got an eight-month contract doing plumbing work. It’s bad for him there, but he hopes things will normalize,” she said.
President Sadyr Japarov did little to temper nervous moods in a statement to the public on February 28.
“Our country is experiencing difficulties due to a significant increase in prices for fuel. The price of flour and other cereals has risen significantly. All of this is happening while our economy has yet to recover from the coronavirus pandemic,” he said.
As to the incipient currency death spiral, Japarov suggested citizens could buy gold with their som.
“The value of any currency is always decreasing. The value of our gold keeps rising. So those of our citizens who have money can buy gold from the National Bank in any amount, in bars weighing anywhere from 1 gram to 13 kilograms,” he said.
In Tajikistan, the somoni has lost 35 percent of its value against the ruble since Russia decided last week to recognize the sovereignty of two breakaway territories in eastern Ukraine. This is important because around one-third of the country’s economy is accounted for by remittances sent home as rubles and received in Tajikistan as somoni.
There is limited scope of buying and selling currency in Tajikistan even in normal times. In 2016, the financial regulator ordered the closure of all unauthorized currency exchange points. Since then, only banks have been able to perform foreign exchange operations. Any currency exchange transactions done outside banks are punishable by up to nine years in prison.
Banks are now still in theory prepared to sell up to $100 in hard currency at a rate of 11.30 somoni to the dollar. The black-market rate is closer to 11.50 to the dollar. Dollar rates have remained relatively stable over the past week. Households will be keeping a watch on any sharp changes.
Hamza, a 26-year-old migrant from Tajikistan now living in St. Petersburg, told Eurasianet that usually, after he has paid for his own costs – which include his work permit, rent and food – he is able to send 14,000 rubles back home every month. At the ruble-to-dollar exchange rate of around 75 at the start of this year, that converted into around $190. But the ruble was trading at well over 100 to dollar by the start of this week, and the slide may yet continue, so the value of Hamza’s remittances will fall accordingly.
“That money was enough to feed my two children, my wife and mother. Also, if there was an urgent need to buy clothes, it would cover that too. I wasn’t able to send more,” Hamza said.