Uzbekistan has devalued its currency by almost half as the former Soviet republic floated the som to end more than two decades of economic and market isolation.
The country’s central bank rated the U.S. dollar at 8,100 soms on September 5, compared with the previous rate of 4,210 soms. The new rate is even weaker than the som's black-market convertibility of about 7,700 to the dollar.
The move came as a presidential order took effect that untethered the currency from its U.S. dollar peg, while restrictions on the amount of foreign currencies individuals and companies can buy were also abolished.
According to the order, effective from September 5, the country has adopted "exclusive use of market mechanisms in determining the exchange rate of the national currency in relation to foreign currencies."
The reforms are part of a series of steps President Shavkat Mirziyoev, who was elected in December, is taking to help open Central Asia’s second largest economy, attract foreign investment, and reduce the isolation of a country of some 30 million people.
Islam Karimov, Uzbekistan's former president who died last year, had pinned the value of the som to the dollar. But the policy led to a flourishing illegal black market.
While Mirziyoev has praised the legacy of Karimov, under whom he served as prime minister for 13 years, he has also moved to distance himself from Karimov's authoritarian excesses and tried to tempt investors towards the commodity-rich country.
Uzbek President Shavkat Mirziyoev (file photo)
The moves have started paying dividends.
In March, the European Bank for Reconstruction and Development (EBRD) said it would resume lending in the country after human rights concerns caused a decade-long standoff between the two sides.
Human Rights Watch has also been invited back to Uzbekistan after being banished by Karimov, who ruled the country with an iron fist even before it declared its independence from the Soviet Union.
Two-Tier System
The devaluation will help put an end to the de facto two-tier system for currency exchange where dealers on the black market held a major influence over the state-dominated economy.
It also is likely to "significantly reduce the purchasing capacity of its currency," Saparbay Jubaev, an associate professor at the Eurasian Economic University in Astana, told RFE/RL.
Foreign companies have largely stayed out of resource-rich Uzbekistan because decades-old regulations under Karimov forced most businesses to sell foreign currency at a knockdown official rate while buying it at a much more costly one.
The decree states that the central bank will still have the responsibility of maintaining the som's stability, but it does not specify how that should be accomplished other than to say a tight monetary policy will be needed.
Julius Yusupov, an economist and the director of the Center for Economic Development in Uzbekistan, said the change in the currency’s value is unlikely to cause a jump in consumer prices because the cost of most goods and services were informally linked to the black market rate anyway.
"Even though some importers traded the som officially, they sold it at a market price," Yusupov said.
In addition to the free-floating currency, citizens and organizations will be able "without limitations, to purchase foreign currencies in commercial banks for use in regular international transactions," the presidential decree says.
In August, Uzbekistan had dropped a regulation that required exporters to sell one-quarter of their hard-currency revenue to the government.