Baku, Azerbaijan, July 6
By Fikret Dolukhanov – Trend:
After achieving inflation targets, the Central Bank of Uzbekistan can move to a “low Uzbek soum” policy, Director of the Center for Economic Development in Uzbekistan Yuliy Yusupov told Trend.
According to him, implementation of the “low sum” policy will promote expansion of exports and increase the competitiveness of Uzbek enterprises.
“It's good that we have one exchange rate now, and not three, like a year ago. That makes an analysis easier. Exchange rate and its fluctuations very much affect imports and exports. The more expensive the US dollar is, the more profitable exports become and vice versa” the expert said.
Yusupov reminded that exchange rate is a natural regulator of proceeding and outflowing currency and there is a certain “equilibrium” exchange rate, which ensures equality between demand and supply in the foreign exchange market.
The expert noted in some countries the exchange rate is determined exclusively by market processes, and balancing of supply and demand of the currency is carried out spontaneously.
“But there are not so many such countries. In most countries, the state, through its central bank, intervenes in foreign exchange market and consciously “moves” the exchange rate by buying or selling currency. The central bank often simply sets the exchange rate and guarantees that it will buy or sell the currency at this rate to commercial banks. Obviously, such a policy has nothing to do with what our Central Bank had actually been doing until September 2017,” Yusupov said.
The expert added that the Central Bank of Uzbekistan had simply set the official rate without any obligation to sell the currency at this rate, which is unacceptable for any market economy.
Yusupov stressed that the official exchange rate of the US dollar to the soum has been falling for several months in a row, so one can talk about unprecedented stability of the soum’s exchange rate, which is kept at approximately the same level for such a long time for the first time in its history.
“How long will this stability last? To answer this question, you need to know whether the current rate is “equilibrium rate” or rather how far it deviates from the “equilibrium point”, what factors can affect the currency market in the near future and what are the plans and priorities of the Central Bank,” the expert said.
According to Yusupov, the gold and foreign currency reserves of the Central Bank are the key indicator that shows how close the exchange rate is to the “equilibrium point”.
“Since the beginning of 2018, the total amount of gold and foreign currency reserves in three months increased by 7.8 percent. However, we must keep in mind that the key growth factor was the increasing price of gold. The gold reserves, having not changed in quantitative terms, have risen in price by as much as 14 percent. So, foreign currency actually increased by 2.3 percent. Considering the data on gold and foreign currency reserves, the current exchange rate of US dollar to soum is a bit too high,” the expert said.
Yusupov believes that the Central Bank will not abandon the principle of “neutrality of gold and currency reserves”, maintaining the exchange rate at its closest to the “equilibrium point”, before curbing inflation.
“After ensuring stability of monetary circulation, the policy of the Central Bank will inevitably soften. In particular, artificially low exchange rate of soum (expensive US dollar) is an important tool of export-oriented strategy, which has been successfully used by many countries. The “low soum” policy will help accelerating development of the economy,” the expert concluded.
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