TASHKENT -- Uzbekistan has moved to a floating exchange rate for its currency, the som, as the central bank allows the influence of external factors to help determine the exchange rate.
Uzbekistan's central bank said that as of August 20, 'the exchange rate will be formed by vendors and buyers only, due to economic necessity.'
Both Uzbekistan and neighboring Tajikistan, which allowed its currency to weaken on August 20, depend to a large extent on remittances from migrant laborers working in Russia, making them sensitive to changes in the ruble, which has been trading around six-month lows.
As of August 20, all commercial banks in Uzbekistan began selling foreign currencies to customers.
The Uzbek central bank has noted increased volatility in the som, and has pledged to closely monitor the market and soften the effects of external shocks while working with the government to rein in any fiscal or monetary expansion.
The changes are part of a series of steps President Shavkat Mirziyoev has taken to help open Central Asia's second-largest economy, attract foreign investment, and reduce the isolation of the country of some 30 million.
Until August 20, banks did not sell foreign currencies, though they did buy them from individuals.
The central bank's move sparked a sharp weakening of the som, with the rate on August 20 at 9,384 soms against $1, about 323 soms more than the previous day.
Since August 1, the som has lost 10 percent of its value against the U.S. dollar.
Mirziyoev's predecessor, Islam Karimov, who died in 2016, had pinned the value of the som to the dollar, a policy that led to a flourishing illegal black market.
Tajikistan's government increased the exchange rate of the national currency, the somoni, on August 20, putting it at 9.7 somonis to the dollar, saying the move was 'necessary to narrow the difference between the official exchange rate and that on the black market.'
A day earlier the rate was 9.43 somonis for $1.
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