Uzbekistan Evaluating Prospects of Convertible Currency

Uzbek monetary authorities recently announced an intention to make the country’s national currency, the som, freely exchangeable. If Uzbek leaders succeed in realizing this goal, it will mark a transformational moment in the country’s post-Soviet economic development.

Preliminary plans to make the Uzbek currency convertible were first aired amid the election of President Shavkat Mirzyoyev last December. The president formalized the idea with a decree this past February that called on the government to promote “economic liberalization aimed at further strengthening macroeconomic stability and the maintenance of high economic growth,” Eurasiareview reported.

Given Uzbekistan’s past record on reform, it is understandable that the analyst community greeted overhaul intentions with a healthy dose of skepticism. Uzbek political leaders have a long history of announcing plans for economic reform, including price liberalization, privatization and the shift to a convertible currency. Yet over the past two decades, reforms have tended not to move past the drafting stages. Seemingly, after every announcement of the government’s commitment to economic reform, “complications” arose that slowed and, ultimately, derailed modernization efforts.

Uzbekistan inherited from the Soviet Union a highly centralized, “command” economy, along with a combination of volatile social and political problems. The government, which was led by the late Islam Karimov from independence in 1991 until last September, chose a cautious approach to all reform, stressing instead political stability and continuity.

There are signs that Mirziyoyev’s reform plans are distinctly different from those announced by his predecessor. The February presidential decree, for example, marked a significant departure from Karimov-era practices by explicitly identifying important reform objectives, including price liberalization and the elimination of the country’s multi-tiered exchange mechanisms.

In addition, recent commitments made by the Uzbek government to the International Monetary Fund have gone far beyond what observers expected. For years, Uzbek authorities stonewalled reform recommendations made by international monetary institutions. Now, Tashkent is making it clear that it is listening.

A recent IMF announcement on consultations, for example, refers to an Uzbek commitment to undertake comprehensive economic reform, including “unifying exchange rates and allowing a market-based allocation of foreign exchange resources.”

The Uzbek government underscored these commitments by taking difficult steps, including raising the rate the government uses to loan to banks to the level of 14% in an effort to contain inflation. Uzbekistan has also mounted a diplomatic offensive with European Union officials to emphasize the seriousness of Tashkent’s reform intentions.