Conway’s experts, Part 5

Stop the presses. The Conway Bulletin has uncovered a major scoop in Uzbekistan. Or so it may think.

The Bulletin notes that the exchange rate of the som, Uzbekistan’s currency, for a US dollar has increased to 8,390 som. “Uzbek soum strengthens more than 2% to four-month high,” the Bulletin headlines. It asserts that Tashkent has been managing a depreciation of the som and intones, “There has been no notification from the Central Bank on just why it appears to have reversed this process.”

One reason for the lack of notification may be that the som, in fact, is not strengthening. The Bulletin has apparently misread the exchange rate. An increase in the home exchange rate with respect to a unit of foreign currency (like the dollar) is a weakening of the home currency (like the som).

For example, suppose that the exchange rate of the Russian currency rises from 10 rubles per dollar to 20 rubles per dollar. On the market, a buck can now buy twice as many rubles as before, so it has strengthened: That is, its foreign purchasing power has increased. Conversely, the ruble can buy only half as much of a dollar than before: The value of the ruble has fallen from one-tenth of a dollar to one-twentieth.

Likewise for the som. Its dollar value has fallen 7.7% since July.

The som was grossly over-valued, and a favorite of the black market, until the central bank made it convertible in September 2017 – a key reform of the new Mirziyoyev regime. The som promptly crashed, from an exchange rate of 4,210 per dollar to 8,100.  Since then the currency has been on a relatively even keel but continues to weaken. –Leon Taylor tayloralmaty@gmail.com

References

The Conway Bulletin. Uzbek soum strengthens more than 2% to 4-month high. March 22, 2019. Page 9.

Eurasianet.org.  Uzbekistan returns to currency convertibility, delivers blow to black market.  September 5, 2017.