Central Bank of Uzbekistan: Natural Level of Dollarization Declines Amid Price Stability

Tashkent, Uzbekistan (UzDaily.com) — The Central Bank of Uzbekistan (CBU) has published the results of its first comprehensive study assessing the “natural level of dollarization” in the economy, a key indicator of trust in the national currency and the effectiveness of monetary policy.

According to calculations based on the Minimum Variance Portfolio (MVP) approach, the country’s natural level of dollarization has significantly declined since early 2020.

Decline in the Natural Level and Bank Deposit Dynamics

The study, conducted by the CBU’s Statistics and Research Department, evaluates the natural level of dollarization considering factors such as inflation volatility and the real exchange rate. This level reflects the point at which households and businesses optimally diversify risks using both the Uzbek som and foreign currency.

As of October 2025, the natural level of dollarization calculated over a short-term period (last 12 months) was 17.8%, a significant decrease from 24.5% at the beginning of 2020. A three-year rolling calculation showed the natural level at 19.3%.

The CBU notes that this trend is clearly reflected in the banking sector, demonstrating growing confidence in the som. The share of foreign currency deposits by legal entities fell from 48.2% to 20.5%, while deposits of individuals declined from 32.6% to 22.5% between 2019 and November 2025.

Drivers of Dedollarization

CBU analysts emphasize that the key factor reducing the natural level of dollarization and strengthening trust in the national currency is price stability. Conversely, continuous devaluation of the exchange rate undermines confidence in the som, increasing the natural level of dollarization.

The study also highlighted that rising exchange rate volatility observed since the beginning of the year increased uncertainty among households and businesses regarding savings, pricing, and foreign currency transactions. In the context of price stability, this factor has contributed to further reductions in the natural level of dollarization.

Comparisons and the Real Picture

The natural level of dollarization serves as a benchmark for assessing the actual level of dollarization in term deposits. According to IMF data for 2019, Uzbekistan’s natural level was estimated at 16.5%. Compared with regional peers such as Kyrgyzstan (36.6%) and Armenia (29.8%), Uzbekistan’s natural level of dollarization remains relatively low.

However, despite the positive trend in term deposit dollarization, which fell to 15.9%, the report notes that demand deposit dollarization has remained high for an extended period, exceeding 40%. This indicates that households and businesses continue to use foreign currency for everyday transactions and as a payment medium, reflecting actual currency substitution.

The Central Bank concludes that aligning actual dollarization with its natural level reduces risks to the effectiveness of monetary policy and macroeconomic stability.

In an open economy with a still-developing capital market, maintaining a certain natural level of dollarization is inevitable, as foreign currency is used for diversifying investment and savings risks and for foreign trade operations.