The central bank of Uzbekistan yesterday devalued its currency, the som, by 92% against the US dollar.
The new exchange rate was set at USD 1 / UZS 8 100, having been UZS 4 210 the day before, and will be adjusted every Monday in line with "market mechanisms", according to the bank. The value of the som has for years been managed with strong reference to the dollar, and although the peg has been increasingly loose in recent months, official exchange rates were hugely overvalued and a thriving black market for foreign currencies developed.
The new official rate is even weaker than the latest black-market rate reported - USD 1 / UZS 7 700.
The move adds to other liberalisation measures since President Shavkat Mirziyoev took over from long-time incumbent, Islam Karimov, in December 2016. Karimov had for decades kept Uzbekistan isolated, but his successor seems determined to open it up to the world and strengthen links with the global financial system in order to attract investment.
Inflation, particularly of imported goods that foreign staff tend to buy, will certainly increase, but it is difficult to gauge how much. The ubiquitousness of the black market suggests many importers may have been using it to obtain foreign currencies to buy from abroad, in which case the prices of those goods will already have risen accordingly. On the other hand, the economy remains as yet largely state-dominated and publicly-owned importers are more likely to have been using official exchange rates.
As always, ECA will closely monitor prices and any further significant exchange-rate moves to provide a complete picture of how cost of living is affected for your international staff.