Accessibility links

Explainer: Why Did Central Bank Tighten Uzbeks' Access To Hard Currency?

  • Charles Recknagel

Demand for dollars among ordinary people is always high because many people regard it as a more stable currency than the som.

Demand for dollars among ordinary people is always high because many people regard it as a more stable currency than the som.

Uzbekistan's Central Bank is putting new restrictions into place that could reduce the widespread use of hard currency by ordinary citizens.

The restrictions – which took effect on February 1 – are raising fears among many Uzbeks that they could get poorer as a result.

The Central Bank announced on January 30 that ordinary citizens can no longer change Uzbek soms into hard currency at commercial banks and receive their hard currency in cash.

Instead, they will only be able to receive it electronically and under certain strict conditions.

One, they must have a bank account in soms and a foreign-currency account.

Two, they must buy their hard currency by transferring money from their som account into a foreign-currency account they hold at the same bank.

And three, they will only be able to make withdrawals of hard currency from their foreign-currency account when they are abroad, by using international banking networks like Visa.

MORE ON UZBEKISTAN: As Tashkent Grapples With Aging Populace, Eldery Asked To Return Pensions

“If you travel abroad, you’ll need to have a Visa card," an employee of the Central Bank explained to RFE/RL's Uzbek Service. "Then go to the bank, write a request, and attach your passport and air ticket copies and state the purpose of your trip. Take your soms in cash and put it into an account, then you’ll get your exchanged dollars through your Visa card.”

The bank employee did not give her name because she is not authorized to speak to the media.

'Meet International Standards'

The Uzbek Central Bank says the aim is to strengthen the status of the Uzbek som as "the only legal tender in Uzbekistan" and "to meet international standards for preventing money laundering."

But many ordinary Uzbeks fear the measures could restrict their access to the dollars and rubles they currently receive through remittances from relatives working outside the country, principally in Russia.

So far, the government has said nothing about whether the new regulations would require remittances sent from abroad to be placed into foreign-currency accounts. Remittances are sent through banks or international money-transfer services and, traditionally, the recipients have been able to receive the transferred amount as hard currency and in cash.

Equally uncertain is whether ordinary citizens will accept any changes in that practice.

Dmitry Povarov, an economist in Tashkent, predicts they will not, and that the changes could backfire on the government.

“[On January 30], RIA Novosti reported, quoting its source, that it’s possible that remittances will be given to people in the national currency," Povarov says. "This idea has been circulating for quite awhile. For the whole year, there was talk that the entire amount of money will be exchanged at the time it's received. Then they spoke about a compromise -- that instead of the full amount of remittances, only 20, 30, or 50 percent [will be exchanged].

"But what will happen after is easy to guess: All money transfer services will close down their operations and leave the country because there won't be anybody to use the system of money transfers and the banks will lose millions [of dollars], which they get now in the form of transfer commissions."

More Stable Currency

The hard currency from remittances – which amounts to billions of dollars each year – is the main source of the dollars and rubles that today are commonly used as tender alongside the som in Uzbekistan. Demand for dollars among ordinary people is always high because many people regard it as a more stable currency for savings than the som.

Since Uzbekistan's independence in 1991, the use of any tender other than soms has been illegal but largely tolerated by the government. However, Tashkent announced last week that it would increase its enforcement of the ban, suggesting it now may be serious about reducing or even eliminating the use of foreign currencies in daily transactions.

The nervousness over the Central Bank's new measures does not only affect those who receive hard-currency remittances and wonder about their access to the money. It also can be felt on Tashkent's black-market currency exchange.

Ahead of the introduction of the new regulations, the black market rate for dollars has risen steadily on fears the supply of hard currency in circulation could shrink. The rate rose from 2,780 soms to the dollar in the middle of this week to 3,000 soms to the dollar on February 1.

'Suitcase Trading'

Any rise in the black-market rate for dollars affects large numbers of small entrepreneurs, especially those who import goods or engage in informal "suitcase trading" with neighboring countries. Many smaller businessmen are tied to the black-market currency rate because they do not have access to the more exclusive world of Uzbekistan's commercial banks.

Commercial banks offer better exchange rates than the black market but access to them is monopolized by powerful groups. RFE/RL's Uzbek Service recently exposed the way rings of women traders limit competitors' access to commercial banks by physically blocking bank doors during working hours. Those who try to push through are physically assaulted.

The battle for access to commercial bank exchange rates is fierce because they are closely tied to the arbitrarily strong som rate set by the Central Bank. On February 1, the commercial bank rate was 1,980 soms to the dollar, compared to 3,000 soms on the black market.

The question now is how soon the Central Bank will clarify the details of its new policy. Until it does, ordinary Uzbeks will keep wondering what it means for their money and how they can best respond.

RFE/RL's Uzbek Service contributed to this report

Show comments