Uzbekistan: Currency Rules Change Marks Momentous Turning Point
Starting from this month, regular Dilshods or Madinas in Uzbekistan will no longer have to skulk around sketchy spots in the bazaar to buy and sell foreign currency.
On August 31, Reuters news agency cited two sources in the banking sector as saying that people will soon be able to convert their cash in banks and exchange bureaus.
This development will be greeted with delight by all segments of society — from the poorest dependents of cash remittances from migrant laborers to many prosperous entrepreneurs. It will also make life easier for independent tourists who have long been puzzled by Uzbekistan’s idiosyncratically shady currency market. Less happy will be the black marketeers who have made countless millions — not to say billions — of dollars over the years on the underground exchange market.
The clues were there to see.
Last week, the Central Bank issued instructions to “strengthen commercial banks’ [function] to buy foreign currency from individuals customers.” In simple terms, authorities are providing hard cash — ever a limited commodity — to financial institutions to exchange.
Still, availability of foreign currency will remain problematic, as Reuters has reported. The news agency’s sources noted “that instead of selling cash foreign currency, Uzbek banks would deposit it into special cards issued to customers.”
And then there is the issue of the divergent official and black market rates. Dollars sell for around 7,700 Uzbek on the black market at the moment, quite a bit higher than the official Central Bank rate of 4,210 sum.
The current situation is clearly unsustainable. Uzbek exporters have to date been required to sell half of their foreign cash revenues at the official rate, translating into a significant loss in real terms.
The moves to a more liberal currency system were started in November, when President Shavkat Mirziyoyev adopted a government strategy requiring a gradual transition to a market-based currency exchange system. On June 30, Uzbek banks earned the right to begin selling foreign currency to companies at market rates.
As economist Yuliy Yusupov explained, between 2004 and 2008, the official and black market rates were more or less in parity, so converting cash did not present huge issues for entrepreneurs.
“But what is going to happen now is not clear. All we hear are rumors. We need to wait. Moreover, they may be a period of transition. First they will allow people to buy foreign currency with their card, and then they will move to cash. There will be limits, but those exist in many countries. There will eventually be free trading. The process has begun, and it cannot be reversed,” Yusupov told EurasiaNet.org.
Gulnara, a black market currency trader in Tashkent, told EurasiaNet.org that she has been in the business for more than a decade. She said that traders are continuing to buy dollars and euros, but that they are not selling foreign currencies for now. Everybody is waiting for September 4, when the situation may become clearer, said Gulnara, who spoke on condition that her identity be protected.
Gulnara remains confident, however, that the black market will continue to function and that she is no danger of losing her job.