15:40 / 24.12.2021
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Economist analyzes depreciation of Uzbek soum against US dollar

On July 1, 1994, soum banknotes were first issued and the value of 1 US dollar on the currency exchange was exactly 7 soums.  Over the past period, the dollar’s advantage over the soum has increased 1,550 times.

Photo: Kun.uz

In recent days, the dollar continues to rise sharply against the soum. In particular, on December 7, $1 amounted to 10,769 soums, while as of December 23, this figure reached 10,848 soums.

Nevertheless, 2021 remains one of the most stable years for the soum. As of January 1, this year, $1 amounted to 10,476 soums, as of April 1, it amounted to 10,474 soums, as of June 1, it amounted to 10,580 soums, and as of October 1, it amounted to 10,691 soums. As of December 23, the soum has depreciated 3.55% against the dollar since the beginning of the year.

According to economist Otabek Bakirov, the relative stability of the soum this year is mainly due to external factors.

“The relative stability of the currencies of our main trading partners, Russia, China and Kazakhstan, can be added to the external factors that have maintained the stability of the soum.

A few days before the end of 2021, the dollar exchange rate against the ruble, although highly volatile during the year, returned to the beginning of the year at the end of the year, the tenge depreciated by around 3.8% and the yuan strengthened by 2.5%. In other words, the influence of the currencies of our foreign trade partners was neutral. Although the Turkish lira has depreciated by 97% over the year (as of December 15), the fact that we do not have a negative balance in trade with Turkey is easing the situation.

The second external factor was that the central banks of all major countries maintained soft monetary conditions in 2021. If the situation were reversed, we would have felt the pressure of it (we will start to feel it in 2022). The third factor is that exports, which are recovering in official figures, and remittances, which are growing faster than expected, allow us to keep our balance of payments stable. Another factor is the fact that monetary channels, which affect the exchange rate, are not allowed to overheat, and effective action against dollarization has begun.

After all, the measures and tools in 2021 worked well and the soum exchange rate maintained its relative stability. But we cannot ignore the fact that 2022 is a very difficult year ahead,” he said.

How has the dollar strengthened against the soum over the past 10 years?

According to the CB report on the balance of payments and external debt for 2010-2020, the average annual value of $1 in 2010 was 1,586.5 soums, and by 2020 the average annual value of $1 was 10,055 soums.

Since the beginning of free currency conversion in Uzbekistan in 2017, the official exchange rate of the dollar against the soum has risen sharply. For comparison, in 2016, the average official value of $1 against the soum was 2,965.7 soums, and as of January 1, 2017, it was 3,239.6 soums. But it was almost impossible to buy currency from banks. On the black market, the dollar was much higher than the banks.

On September 2, 2017, the presidential decree “On preliminary measures to liberalize foreign exchange policy” was adopted and the exchange rate of 4210.35 soums was set as the first exchange rate. By the end of 2017, the value of $1 will reach 8,120.7 soums. Due to the policy of liberalization of currency conversion, in 2017, the dollar exchange rate was devalued by 50%.

For information, before the presidential decree in 2017, there was a partial (limited) conversion in Uzbekistan. Purchase of foreign currency was allowed under a separate procedure for individuals (up to $2,000 for tourism purposes, and more for medical and educational expenses and transferred to an international plastic card). And according to the application submitted by legal entities to the stock exchange, they are converted at the state exchange rate according to the available capacity of the banks.

There were no restrictions on the conversion of foreign currency into national currency at the state rate.

At the end of 2018, $1 amounted to 8,339.5 soums, an increase of 2.8% over the year against the soum.

Accordingly, in 2019 (at the end of the year $1 was 9,507 soums), the advantage of the dollar increased by 12.3%, and in 2020 (at the end of the year the value of $1 was 10,476 soums) increased by 9.3%.

In general, on September 5, 2017 (the exchange rate after the policy of liberalization of currency conversion) $1 was 8,100 soums, while on December 23 of this year this value reached 10,848 soums.  Over the past period, the dollar’s dominance increased by 25.4%.

For information, soum banknotes were first issued on July 1, 1994, and the value of $1 on the currency exchange was exactly 7 soums. Over the past period, the dollar’s advantage over the soum has increased 1,550 times.

What are the expectations for 2022?

At the last meeting of the CB Board of Directors held this year, it was stated that there are sufficient opportunities to prevent sharp fluctuations in the national currency exchange rate.

“The situation in the domestic foreign exchange market, the dynamics of the real effective exchange rate of the soum and the lack of high pressure on it, the fact that the Central Bank has sufficient capacity to prevent sharp fluctuations in the national exchange rate mean that there is no reason for high devaluation expectations in the coming months,” the statement said.

Also, the law “On the State Budget of the Republic of Uzbekistan for 2022” predicts that next year the average annual amount of $1 will be around 11,321 soums.

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