September 5, 2017 / 1:33 PM / 2 years ago

Uzbeks queue to buy, sell dollars as Soviet-era restrictions lifted

TASHKENT (Reuters) - Ordinary Uzbeks queued in front of bank offices on Tuesday to legally buy and sell foreign currency for the first time in decades, after President Shavkat Mirziyoyev lifted most restrictions in his biggest economic reform so far.

People queue as they gather at a branch of the National Bank of Uzbekistan to exchange currency in Tashkent, Uzbekistan September 5, 2017. REUTERS/Mukhammadsharif Mamatkulov

Mirziyoyev, who was elected president after the death last September of strongman Islam Karimov, has been gradually dismantling a complex system of foreign exchange rules that had been in place since independence from the Soviet Union in 1991.

They had benefitted the government of the Central Asian country but stifled business and deterred foreign investors whom he is now seeking to attract.

In a decree published on Sunday, Mirziyoyev ordered the government and the central bank to launch retail foreign exchange operations with no restrictions from Sept. 5, but with one caveat — instead of buying foreign cash, Uzbeks are getting the currency on special bank cards.

On Monday, the central bank devalued the official exchange rate of the sum currency UZS= to 8,100 sums per dollar from 4,210 per dollar, making legal exchange bureaus more attractive than the black market, where the rate has been around 7,700.

By 1100 local time, there were dozens-long queues in front of banks and people were calling their friends and relatives to let them know about the liberalization.

“Of course there is a queue at the bank today,” said Kamela Guliyeva, a sports promoter. “But the most important thing is that today free selling and buying of foreign currency has begun. I hope now everything would change for the better.”

“Before, it used to be difficult for to hold and trade these things (foreign currency),” said Bekmurod Rahmatullayev, a pensioner. “Now it is good for people, were are glad.”

Uzbeks had previously mostly bought foreign currency from traders operating illegally. One trader said on Tuesday the authorities were cracking down on the black market, but that it continued to operate as some people preferred their dollars in cash.

Some bank customers, who declined to be named, also said they were disappointed by the restriction on holding cash.

Many Uzbeks have developed a habit of keeping their savings in dollars to protect them from inflation and depreciation.

More importantly, though, the foreign exchange reform has lifted most of the restrictions on businesses, which were previously obliged to sell a chunk of their foreign currency revenue to the state at a knockdown rate.

The restrictions were one of the main reasons most Western companies have stayed out of the country of 32 million people, despite its rich natural resources and potentially large domestic market.

As a result of this, and other failures of the state-dominated economy, millions of Uzbeks have become migrant laborers, mostly working in Russia.

Foreign companies already present in Uzbekistan — such as telecommunications operator VEON VEON.AS, formerly known as Vimpelcom, will benefit immediately from being able to repatriate profits.

“Overall, this is a positive development for VEON as, despite the significant reduction in the dollar-denominated value of its business, currency control was always an issue: the company could not upstream cash out of the country to the HQ level (be it Russia or Amsterdam),” VTB Capital analyst Ivan Kim said in a note on Tuesday.

Writing by Olzhas Auyezov; Editing by Catherine Evans

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