What does the stepwise devaluation of the Uzbekistani sum tell us about CCA currencies?

CAUCASUS / CENTRAL ASIA - In Brief 11 Aug 2023 by Ivan Tchakarov
The Central Bank of Uzbekistan marked a fixing for the sum against the US$ for today, Aug 11th, at about 3.5 percent weaker than yesterday. This is virtually equal to the depreciation that the sum has seen against the US$ from Jan until Aug 10th. In a press release, the central bank argued that this has been driven by the" significant devaluation of the national currencies of the main trading partners, which has led to the strengthening of the real effective exchange rate of the sum through the channel of foreign trade and remittances". It is clear that the trading partner that the Uzbekistani authorities referred to is Russia as the issue of weakening RUB has come to the fore for all countries in the CCA region. Currencies have appreciated from 20 percent in the case of Uzbekistan to 28 percent in the case of Georgia only this year, creating headaches for policy-makers given that this is an issue that has been imported from abroad and is independent from domestic business cycles (Graph 1). In fact, all these countries, save for Armenia, have experienced a deteriorating trade balance with Russia over the course of the past year, which should have been weighing on domestic currencies. Of course, as we have already argued in detail, remittances from Russia have been key in supporting CCA currencies in 2022, although recent data does suggest that the volume of these remittances is falling, which has contributed significantly to deteriorating external positions in the region. As a result, we have also claimed that the CCA currencies are off their peak, with mild depreciation (against the US$ and in REER terms) on the way. The behavior of the Uzbekistani authorities is now ...

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