Bakhromov, Nodir. "The Exchange Rate Volatility and the Trade Balance: Case of Uzbekistan". Journal of Applied Economics and Business Research, Vol.1, No.3 (2011): 149-161.

Bakhromov, Nodir. "The Exchange Rate Volatility and the Trade Balance: Case of Uzbekistan". Journal of Applied Economics and Business Research, Vol.1, No.3 (2011): 149-161.

• The exchange rate of the Uzbekistani so'm operates on a 'crawling peg' system, where limits on possible exchange rate values are set, but the market is allowed to determine the actual exchange rate within those boundaries (150).
• Uzbekistani foreign trade policy promotes import substitution industrialization, meaning that the government prioritizes the growth of export-oriented manufacturing, as well as the import of industrial machinery and equipment. The exchange rate policy of Uzbekistan should be constructed to match these trade policy goals (150).
• An earlier 2008 study by Drs. Olimov and Sirajiddinov showed that, unsurprisingly, the highly volatile Uzbekistani exchange rate between 2001 and 2003, when the currency became convertible, had a negative effect on economic growth. The author seeks to explore a broader range of possible effects (150).
• Uzbekistan first introduced an exchange rate and monetary policy in 1994, introducing the 'second' so'm designed to avoid the hyperinflation which had resulted during 1993 as the 'first' so'm replaced the Soviet ruble. In 1996, Uzbekistan introduced a foreign reserve rationing system designed to promote import substitution by prioritizing certain exports and imports (151).
• In 2001, Uzbekistan set the official exchange rate to that used by commercial banks, bringing government policy into line with actual currency value. To meet IMF standards for exchange rate markets, however, Uzbekistan needed to devalue the so'm to bring it into line with the commercial exchange rate (152).
• The Central Bank further liberalized the currency exchange markets in 2003, after Uzbekistan became party to Article VIII of the IMF. This greatly increased the supply of foreign currency available for exchange and made the market more accessible to non-privileged companies, greatly reducing the appeal of illegal 'black market' currency exchanges (152).
• From the 1990s until 2001, the black market exchange rate for the so'm was significantly higher -- around 4 times higher -- than the official exchange rate, with both exchange rates devaluing due to inflation. Beginning in 2001, the value of the so'm began to rapidly depreciate, with its black market value fluctuating to an even greater degree, rapidly increasing than beginning to decline in 2002. By 2003, the rate of currency depreciation had slowed to a near plateau, and the official and black market rates merged around 2004 (152).
• The exchange rate of the Uzbekistani so'm versus the US dollar has consistently volatile during the 1990s, but became over ten times more volatile during the period between 2001 and 2003. Since 2004, the exchange rate has been very stable (156).
• In the long-term, the statistical model used indicates that a more depreciated exchange rate for the so'm is better for Uzbekistani exports, although higher this also dampens imports. Exchange rate volatility has the expected negative effect on exports (158).
• The decisive decrease in exchange rate volatility following monetary reforms in 2001 and 2003 had a significant long-term effect on the health of the Uzbekistani economy. The more stable exchange rate resulting from currency liberalization under the 'fixed peg' exchange system has allowed large increases in trade revenue (158).
• The author recommends that, considering the benefits of a stable exchange rate, the Central Bank should prioritize the maintenance of a stable exchange rate, focusing on maintaining official parity with the market value of the so'm (158).