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Uzbekistan said Sunday that it would no longer fix its currency (so’m) to the dollar, letting the market determine its value in an overhaul of foreign exchange polices that could help the country entice more foreign investment.
In a decree published on the presidential website, the government also said it would now let individuals and companies purchase unlimited amounts of foreign currencies, relaxing strict capital controls.
Under a longstanding and unpopular policy imposed by Islam Karimov, the ex-Soviet country's first independence-era ruler, Uzbekistan had tied the value of its currency, the so’m, to the dollar.
But in recent years the gap between the official exchange rate of 4,210 so’ms has soared, with the currency worth just over half that rate against the dollar on the flourishing black market. According to the order, effective September 5, the country will adopt "exclusive use of market mechanisms in determining the exchange rate of the national currency in relation to foreign currency."
Moreover, citizens and organizations registered in the country may "without limitations, purchase foreign currencies in commercial banks for use in regular international transactions." The decree ordered the central bank to maintain the sum's stability but did not clarify what mechanisms it would put in place.
Companies working with international markets were particularly disadvantaged under the old system as they were forced to sell their foreign reserves at the miserly government rate. While ordinary citizens regularly turned to black market dealers, exporters were particularly disadvantaged, a factor that along with rampant corruption has stymied foreign investment. The decree acknowledged that Byzantine foreign currency regulations in the country "created an inefficient system of privileges and preferences for individual industries and business entities".
President Shavkat Mirziyoyev came to power after Karimov's death last year. While Mirziyoyev 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 republic.
In March the European Bank of Reconstruction and Development announced it was set to resume lending in the country of 32 million after a decade-long standoff sparked by a human rights concerns.
Human Rights Watch has also been invited back to the country following an enforced absence under Karimov, who ruled Uzbekistan with an iron fist from before independence from Moscow.
Pakistan’s rupee weakened sharply against the dollar on Tuesday in what appeared to be a currency devaluation by the central bank, traders said, the second such intervention in less than four months.
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