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POSSIBILITIES OF UZBEKISTAN'S CURRENCY MARKET EXPANSION THROUGH LIBERALIZATION USING ALL KINDS OF CURRENCY VALUES
Candidate of Economic Sciences Kadirov E. T, Assistant Khydoyorov O. O.
Abstract. Author in this scientific paper analyzes the formation, growth dynamics and internal changes in the exchange market during the period of independence of Uzbekistan. Article is devoted to the problem, such as widening the exchange market by mobilizing all currency values in the future.
Today the countries with developing national economy is faced with the problem related to full modernization of operating industrial enterprises since they do not meet up-to-date requirements as of technical and technological parameters. Therefore, the main strategic goal of economic and financial policies of these countries is to attract foreign investments into the national economy through liberalization of foreign trade operations in order to strengthen domestic currency market. Toward this goal a successful work has been carried out for more than twenty years in Uzbekistan, there have been significant changes.
At the same time, despite the significant progress in international economic relations, till present there are still some problems of the domestic financial market development, namely the lack of foreign exchange reserves retarding the full-scale development of the Republic economy. Immediate solution of this problem requires, first of all, liberalization of foreign trade relations, export-import operations and all other foreign exchange transactions of commercial banks associated with foreign capital attraction as well as promotion of using all currency values.
It is known that the functioning of domestic and international currency markets is significantly different. If at the international currency market the majority of issues are being resolved by the market method, it means on the basis of supply and demand ratio, the domestic currency markets are regulated and controlled by the state through the adoption of laws, decrees, regulations and other statutory acts relevant to a particular stage of development of the national economy. On the basis of relevant policies and chosen paths of economic development, national governments mobilize existing currency values, all or in part, for the solution of a problem and thus pursue the monetary policy, which could lead to activation or containment of currency flows movement.
Everyone knows that all over the world per day, it means within 24 hours, at the foreign exchange markets are carried out huge foreign exchange transactions for the purchase and sale of foreign currency in the amount of US$ 3.7 billion. If this amount is multiplied by the number of business days a year, we'll get an astronomical amount. Besides, this amount should be added by an annual volume of unofficial foreign exchange transactions, which makes up to 67 US Dollars trillion. This indicates that the volume of foreign exchange currency markets in the world is limitless, and their size is growing at an exponential rate.
In Uzbekistan the foreign exchange market and foreign exchange transactions have been mainly formed and developed after independence since 1991. In the initial period of transition to a market economy, foreign trade and currency relations have been monopolized by the state and centrally managed. At the Ministry of Finance was established Republican Monetary Fund, which accumulated the bulk of currency values. Later on, since 1995 the gold and forex assets have been transferred by the Government in the management of the Central Bank, because it was so considered legitimate and appropriate by the experts from the International Monetary Fund. Thus, due to the gradual de-monopolization, domestic foreign exchange market and foreign exchange transactions of commercial banks have been formed and expanded.
According to the results of the initial currency reform on decentralized exports, 70 percents of foreign exchange earnings of the exporting enterprises in a mandatory manner were sold for the needs of the state and used centrally, the rest 30 percents remained on the foreign currency accounts of
enterprises and were used by them at their own discretion. On centralized export 100 percent of foreign exchange earnings of exporters were sold to the Central Bank at the rate as for the moment of the transaction settlement within the deadline.
With centralized export the state enterprises produce marketable products, which are exported by the state centrally through its foreign trade companies. In this case, this mechanism covers 100 per cent export of precious metals (gold, silver, and others.), and 60 percent of cotton fiber export.
According to the results of ongoing currency reforms has established the existing practice of mandatory sale of 50 percent of the decentralized currency earnings of exporters to the commercial banks at the rate of the Central Bank on the day of the sale, and the remaining 50 percent were used at the sole discretion of the exporters. It should be noted that a number of enterprises-exporters were granted benefits in the form of exemption from the mandatory sale of foreign currency earnings.
For example, enterprises set up at the expenses of foreign investments were exempted from the mandatory 50 per cent sale of foreign exchange earnings within 5 years. In addition, later on small scale business enterprises that export their own products were also exempted from the mandatory sale of foreign currency earnings. However, for the purposes of export promotion was set a regime of tax reduction in accordance with the export increase. Taken by the government stimulating measures resulted in expansion of foreign economic relations, and increase in the foreign trade turnovers.
Table 1. The Volume and Structure of Foreign Trade Turnover of the Republic of Uzbekistan, 1990-2010 1 (in billion US Dollars)
Indicators 1990 2000 2010 2010 to 1990 , times
Foreign Trade Turnover 0,80 6,2 21,8 27,1
Export 0,44 3,3 13,0 29,5
Import 0,36 2,9 8,8 24,2
Balance (+; -) + 0,08 +0,4 +4,2 + 4,12 billion US Dollars
Table 1 data shows that in the country for 20 years foreign trade turnover has increased by more than 27.1 times. This happened mainly due to the outrunning growth of export by 29.5 times, and import growth by 24.2 times.
Besides, it is necessary to note that in the review period, the foreign trade balance has a stable surplus, the size of which in 2010 amounted to 4.2 US$ billion.
It is known that positive foreign trade balance allows the Central Bank to replenish gold reserves of the country. In the Republic its scope in the subsequent years had an annual growth by nearly 2 percent. Available volume of gold and currency reserves of the Central Bank is sufficient for the timely repayment of external debt and payment of interest thereon. It should be noted that the size of the external debt does not exceed 15-16 percent of the annual Gross National Product.
In 2011-2013 there were also an increase in foreign trade turnover and some changes in its structure. It can be seen from the following data.
Table 2. The Volume and Structure of Foreign Trade Turnover in the Republic of Uzbekistan, 2011 - 2013 (in billion US Dollars)
Indicators 2011 2012 2013 2013 to 2011, %
Foreign Trade Turnover 25,54 31,48 28,89 113,1
Export 15,03 16,07 15,09 100,4
Import 10,51 15,41 13,80 131,3
Balance (+; -) +4,52 +0,66 +1,29 -3,23 billion US Dollars
1 Main Trends and Indicators of economic and social development of the Republic of Uzbekistan for the Period of independence (1990-2010 ) and the Forecast for 2011-2015 (...): Collection of Scientific Articles -T. "Uzbekistan" 2011-136 p.
It can be seen from the above Table that within 2011-2013 there have been sufficient changes in the structure of the foreign trade turnover in the Republic.
With the growth of foreign trade turnover by 13 per cent import transactions have increased by 31 percent, while export has grown only by 0.4 percent. Besides, positive balance in 2013 reduced by 3.2 billion US Dollars as compared to the year of 2011. This indicates that in the Republic the demand for foreign currency has sharply increased in recent years, while export incentives appeared to be insufficient.
Practice shows that development of the national economy depends not only on the positive or negative impact of the foreign economic activity sector, but also on the appropriate regulatory currency exchange rate policy of the Central Bank. The level of this dependence should be subject to regular review, it should be in the highlight of public institutions and independent Analytical Centers. Direct dependence of the effective indicators on the above stated factors could, in case of unadjusted foreign exchange policy of the Central Bank, play an inhibiting role in further development of foreign economic relations.
For example, the Central Bank of Russia in 2014 dramatically changed foreign exchange policy by loosening the national currency to float freely in order to save gold and foreign currency reserves and plug the leak in the foreign exchange capital. This led to an immediate adjustment of exchange rate policy of the Central Bank of Kazakhstan, Belarus and Turkmenistan in the direction of devaluation of their national currency to protect the interests of their exporters. However, the Central Bank of Uzbekistan hasn't made any adjustments of its exchange rate policy. This ultimately led to the lack of competitiveness of exported Uzbek goods, since for Uzbek exporters it became more profitable to sell their products in the domestic market than export them to their own disadvantage, as there are no mechanisms in the country for export subsidies by the state.
For sustainable development of the foreign economy and foreign trade activity it is objectively necessary that functions of the state policy in the field of economics, finance, currency regulation also include operational monitoring and immediate response to the state and the current policy in the above mentioned areas of neighboring countries, which would allow timely adjust, stimulate, and enhance the development of the up-to-date directions and mechanisms of their own national economy.
Next, we consider the change in the share of foreign trade turnover, including exports and import, in the gross national product of Uzbekistan in 1990-2010.
Table 3. Dynamics of the Foreign Trade Turnover Share in the Gross National Product (GNP) of Uzbekistan2 (per cents)
Indications 1990 2000 2010
Share of the foreign trade turnover in GNP 6,0 45,4 56,1
Export 3,3 24,0 33,5
Import 2,7 21,4 22,6
The data in Table 3 show that for 20 years the share of foreign trade turnover in the composition of the country's GNP has grown from 6 percent in 1990 to 56 percent in 2010. On the one hand, it is a very good indicator, but on the other hand, any force majeure changes in international economic relations will not only able to reduce protection, but also harm the national economy. This was confirmed in 2008-2009 during the global financial and economic crisis, when the world market evidenced decline in demand and prices for some goods and raw materials, which are traditionally exported by exporting countries.
It also affected Uzbekistan, and had an adverse effect on the operations of exporting enterprises that subsequently required special additional measures in the field of credit, budget and tax support for the exporting enterprises.
If we analyze the dynamics of volume of Uzbek internal currency market, than its amount in 2010 was 11.5 billion US Dollars with a growth by 27.2 per cent as compared with the previous year. This high growth is evaluated positively, but in per capita terms it is still insufficient. This evidences
2 Calculated by the authors on the basis of statistical data
that it is necessary to look for ways to increase the domestic foreign exchange market. In the domestic market for full coverage of demand for foreign currency it is necessary to find ways to increase available foreign exchange resources and attract all kinds of currency values.
In order to fully meet the currency needs of the national economy and accelerate implementation of modernization of all sectors of the national economy, in our opinion, it is necessary to pay attention to the following courses of change of the state currency monetary policy.
1. In connection with the transition to a freely floating exchange rate of the Russian Ruble, corresponding devaluation of the Belarusian Ruble and Kazakhstani Tenge, it means national currencies of the states being the members of Euro-Asian Union, it is required to conduct immediately: a) the relevant currency devaluation of the national currency - "Soum", which will be an additional incentive for exporting enterprises; or b) transfer to subsidizing exporting enterprises' losses at the expense of the state budget.
2. It is advisable to privatize Navoi and Almalyk Mining and Metallurgical Complexes, which as for the scale of production of non-ferrous metals are the large state-owned enterprises not only in Uzbekistan, but also in the Central Asia. The sale within no more than 50 per cent stake to foreign investors and residents of the Republic, in our view, will lead to an increase in extraction of precious metals, since Uzbekistan is one of the five states possessing the largest proven reserves of gold. However, in recent years in terms of gold mining the Republic has fallen from the previous eighth position in the world to some lower one.
3. The law of the Republic of Uzbekistan "On Currency Regulation" specifies refined gold as one of the kinds of currency values. But in practice, neither commercial banks nor population of the Republic have the right to perform any operations with this type of currency values. At the same time currently all over the world refined gold is the subject to purchase and sale, ownership, savings and mortgage. In our opinion, in the Republic has escalated a matter concerning liberalization of operations with this valuable type of goods on the basis of an appropriate legislative framework, permitting the Ministry of Finance an issue of "gold loans", commercial banks - performance of transactions with gold, and population -hoarding of gold. Thus, it is possible to revive the domestic foreign exchange market, including the legalization of private motivating shadow foreign exchange market.
4. According to official data of the Central Bank of Russia, about 50 billion US dollars are being annually exported from the Republic to the CIS countries. Out of them about 4-5 billion US dollars are exported by the citizens of the Republic of Uzbekistan per year, which come to the domestic foreign exchange market; their share in the domestic foreign exchange market is 1/3. Therefore, in order, firstly, to ensure national security and, secondly, and study the foreign currency movement it is required arrangement of these values monitoring on an ongoing basis with the creation of a special structure for this flow study.
From our point of view, the gradual implementation of the above mentioned measures will enable to increase foreign currency reserves of the domestic foreign currency market and strengthen the purchasing power of the national currency.
Article was received 2015-08-27 © Kadirov E. T., © Khydoyorov O. O.
