Uzbekistan announced it will no longer restrict citizens from purchasing foreign currencies and will end a cap on the som's daily fluctuations, removing the last roadblocks to a fully floating currency.
The announcement on August 20 was the latest in a series of liberal economic policies that are attracting foreign investors to the once-closed Central Asian nation.
"The exchange rate will be formed by vendors and buyers only, due to economic necessity," Uzbekistan's central bank said in a statement.
Uzbek President Shavkat Mirziyoev is seeking to jump-start economic growth and boost living standards for his nation of nearly 33 million people after a quarter-century of isolation under his predecessor, Islam Karimov.
Mirziyoev, who took power three years ago following the death of autocrat Karimov, in September 2017 ended currency controls, which had been seen as the greatest barrier to foreign investment and economic growth.
Prior to lifting the currency controls, Uzbekistan had a dual-currency market, with an official rate for the U.S. dollar that was half the black-market rate, making investing in the nation more expensive for foreigners.
The central bank continued to limit daily moves to 5 percent while citizens could only legally buy foreign currency for business or travel purposes and not as a store of value. Many did buy foreign currencies on the black market.
"It is the last hurdle to a fully liberalized market," Boban Markovic, a senior analyst overseeing Uzbekistan at the Washington-based Institute of International Finance, told RFE/RL. "It was just a matter of time when this was going to happen."
Individuals are now able to buy foreign currencies from banks and street exchanges and that seemed to have sparked a rush to scoop up dollars as the som fell about 3.5 percent to 9,384 against the U.S. dollar.
The new policy -- along with future reform of the banking sector -- could boost savings on deposits at Uzbek banks, giving them the firepower to boost lending, Markovic said.
The nation's citizens have at least $10 billion in savings stored away at home, including in foreign currency, that can potentially be placed on deposit in local banks, Uzbek officials said last month at a business conference in Washington.
However, Uzbek banks must first carry out reforms to gain the trust of the population before they will deposit those savings, Markovic said.
Uzbekistan's currency will likely track moves in the Russian ruble, he said.
The Central Asian nation's economy depends to a large extent on remittances from migrant laborers working in Russia, making its currency sensitive to changes in the ruble, he said.
Uzbekistan receives about $4 billion in annual remittances, the majority of which comes from Russia, he said.
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The Uzbek central bank has noted increased volatility in the som.