Tashkent, Uzbekistan (UzDaily.uz) — The Central Bank of Uzbekistan has approved a strategy for foreign exchange operations and interventions in the domestic currency market for 2026–2030, the regulator said.
The document was developed in accordance with the laws “On the Central Bank of the Republic of Uzbekistan” and “On Currency Regulation.” It defines the Central Bank’s objectives, principles and approaches to communication on foreign exchange operations and interventions.
The strategy covers the part of the Central Bank’s participation in the domestic foreign exchange market related to operations and interventions conducted in the national currency, the soum.
Key concepts
The document defines foreign exchange operations as transactions by the Central Bank involving the sale of foreign currency funds obtained from the sale on international markets of precious metals purchased from local producers, as well as transactions to serve the Central Bank’s clients in buying and selling foreign currency.
Precious metals include gold, silver and other metals purchased from local producers.
Foreign exchange interventions are defined as operations conducted by the Central Bank to ensure the orderly and uninterrupted functioning of the domestic foreign exchange market, smooth sharp fluctuations in the national currency’s exchange rate and maintain an adequate level of liquid international reserves.
The Central Bank’s clients include the Ministry of Economy and Finance, the Fund for Reconstruction and Development, organizations under the Central Bank and other institutions.
The document separately defines the over-the-counter foreign exchange market as a market where the Central Bank conducts transactions through direct agreements with clients, without the participation of a currency exchange.
An adequate level of liquid international reserves is defined as the volume of liquid reserves considered necessary to preserve the country’s ability to service external debt, finance imports and withstand unexpected external economic shocks.
Factors considered in implementing the strategy
According to the document, the strategy will be implemented with consideration of four groups of factors: the Central Bank’s objectives related to ensuring price stability; its operations under monetary policy; its investment policy for managing international reserves; and broader macroeconomic developments, including fiscal conditions and measures regulating capital flows.
Objectives and principles
The Central Bank operates in the domestic foreign exchange market in several areas simultaneously. These include conducting foreign exchange operations, maintaining an adequate level of liquid international reserves in line with its investment policy for reserve management, ensuring the orderly and uninterrupted functioning of the domestic foreign exchange market, including by smoothing the impact of large and/or unexpected demand and supply factors on foreign currency, and mitigating sharp exchange rate fluctuations.
If conflicts arise between these objectives, the Central Bank’s management will determine the priorities in each specific case.
Decisions on foreign exchange operations and interventions are based on several principles. Price stability is ensured within an inflation-targeting regime with a floating exchange rate. Foreign exchange operations must not be aimed at changing the long-term fundamental exchange rate trend consistent with macroeconomic conditions and inflation targets.
The exchange rate itself, or changes in it, is not set as a target indicator of monetary policy. Operations and interventions must not undermine the effective functioning of the inflation-targeting regime or the role of the policy rate in the monetary policy transmission mechanism. They must also not negatively affect the orderly development of the domestic foreign exchange market or its market mechanisms.
In addition, foreign exchange operations and interventions must not lead to the systemic accumulation of currency risks and imbalances in the economy.
The frequency of operations related to the sale of foreign currency proceeds from precious metal sales and the servicing of clients must be determined exclusively by client needs, the seasonality of international sales of precious metals purchased from local producers, and seasonal demand for foreign currency in the domestic market.
At the same time, the frequency and volume of operations and interventions in other cases must gradually adapt to developments in the domestic foreign exchange market and structural features of the economy, including the level of dollarization, the impact of exchange rate changes on inflation, the state of capital flows and the stage of financial market development.
As dollarization declines, capital flows are liberalized, the exchange rate’s impact on inflation decreases and an adequate level of liquid reserves is ensured, the volume and frequency of operations and interventions should gradually decrease.
Conducting operations and interventions
The Central Bank conducts foreign exchange operations without influencing the direction of the exchange rate, according to a schedule announced in advance and at a specified frequency.
Foreign exchange interventions aimed at maintaining an adequate level of liquid international reserves are conducted at a frequency determined by the Central Bank’s management. The adequate level of liquid reserves itself is determined by the management in accordance with the Central Bank’s internal documents on international reserve management.
Interventions aimed at smoothing sharp fluctuations in the national currency’s exchange rate are conducted in a manner that does not influence the direction of the exchange rate formed on the basis of market principles.
Decision-making mechanism
Decision-making processes for foreign exchange operations and interventions, as well as accountability arrangements, are determined by an internal document approved by the Central Bank’s management.
When making decisions on the objectives of foreign exchange operations and interventions, the regulator uses an analysis of qualitative and quantitative indicators. These indicators are set out in the management’s internal document and may be periodically revised.
Foreign exchange operations in the domestic market may be conducted both on a currency exchange and in the over-the-counter foreign exchange market, meaning directly with clients under agreements concluded with them. Foreign exchange interventions, however, are conducted exclusively on a currency exchange.
Communication policy
Information on foreign exchange operations and interventions conducted by the Central Bank, as well as related analytical materials, will be published in accordance with the regulator’s communication policy through public statements, press releases and periodicals.
