Currency - The Times Of Central Asia

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Banking

Dollarization in Kyrgyzstan Declines as Banks Report Lower Profits

The National Bank of the Kyrgyz Republic (NBKR) has reported a continued decline in dollarization within the country’s banking sector, reflecting growing public confidence in the national currency. As of early September, the share of foreign currency loans in the banking sector dropped to 18%, down from over 20% at the start of the year. The decrease is even more pronounced in the deposit base: the share of foreign currency deposits fell from 43% to 38% during the first eight months of 2025. NBKR officials say households are increasingly moving away from the U.S. dollar and other foreign currencies as trust in the national currency, the som, strengthens. Despite the reduction in foreign currency lending and deposits, the sector overall continues to grow. Since the beginning of the year, deposits in Kyrgyz soms have increased by 21%, reaching 717.6 billion KGS ($8.2 billion). The total loan portfolio rose by 26% to 430 billion KGS ($4.9 billion). However, commercial banks are reporting weaker profitability. Financial statements for January to August 2025 indicate a steep drop in earnings from foreign exchange operations. During this period, turnover in foreign currencies fell by more than 2 billion KGS ($23 million), totaling 18 billion KGS ($206.5 million). Analysts note that the current environment contrasts sharply with conditions just a few years ago. After the onset of Russia's war in Ukraine in 2022 and the introduction of Western sanctions, Kyrgyzstan’s currency market experienced significant volatility. Banks then benefited from heightened demand for exchange operations. But with today’s more stable ruble and reduced fluctuations, those profits have diminished. Just five years ago, the National Bank was actively urging citizens to use the som more broadly. At the time, dollar-denominated loans were more expensive, yet remained popular among Kyrgyz borrowers. Now, the trend has reversed, with households increasingly choosing the national currency over foreign alternatives.

Business Climate

Kazakhstan Factories Under Strain as Costs Bite, Economy Shows Mixed Signals

Kazakhstan’s manufacturing sector slipped further in August, with the latest Purchasing Managers’ Index (PMI) falling to 47.9. That was down from 49.9 in July and 49.7 in June, keeping the index below the neutral 50 mark for a third straight month. It also marked the sharpest deterioration in manufacturing activity since March 2022, according to S&P Global and Freedom Holding Corp. From Highs to Lows The striking downturn comes on the heels of a banner year. In December 2024, the PMI reached a record 53.9, capping 11 straight months of expansion. Buoyed by post-pandemic recovery and government support, manufacturing output grew by 6.8% in 2024, the fastest pace since 2011, helping push GDP growth to 5%. But momentum cooled as 2025 began. The PMI slipped to 51.5 in January, reflecting slower expansion after the year-end surge. By June and July, it hovered just under 50, signaling stagnation. Seasonal shutdowns for repairs in August contributed to weaker output, but analysts say the slide points to deeper structural pressures. [caption id="attachment_36026" align="aligncenter" width="1600"] Kazakhstan’s PMI peaked at 53.9 in December 2024 but slid steadily through 2025, falling into contraction territory below 50 by mid-year and hitting 47.9 in August — the sharpest deterioration since March 2022.[/caption] Orders Dry Up, Costs Rise The August report revealed broad-based weaknesses. New orders fell for the first time in 19 months, ending a growth streak that began in early 2024. The decline reflected lower demand from both domestic and export markets. With fewer orders, factories scaled back staffing and cut input purchases. At the same time, costs surged. A weak tenge and fuel inflation made imports more expensive, while logistics delays lengthened supplier delivery times. These pressures forced firms to raise output prices at a faster pace, risking competitiveness. “August saw another sharp decline in business activity in Kazakhstan’s manufacturing sector,” said Yerlan Abdikarimov of Freedom Finance Global, which partners with S&P on the survey. He cited weak demand, volatile commodity markets, rising costs, and currency and tax pressures. Taxes have indeed become a burden. A new code passed in mid-2025 raised the extraction royalties on metals, hitting downstream metallurgy. Inflation stood at 12.2% in August 2025, with the National Bank keeping its policy rate high at 16.5% in a bid to tame prices. That leaves financing costly for businesses, resulting in squeezed margins and thinning confidence. The August survey showed business confidence at its lowest since 2021. While firms still expect growth over the next year, their optimism is increasingly cautious. Industry Responses and Government Initiatives Some executives see hope in the government’s industrial policy. A $400 million cotton-to-textile cluster is under construction with Chinese partners in Turkestan, aiming to process domestic cotton into textiles at scale. Officials say the project, due to start production by late 2025, will create thousands of jobs and expand exports. Light industries, such as textiles and apparel, posted strong growth in the first half of 2025, with clothing up about 5.6% and textiles 5.7% according to official data. Chemicals...

Currency

Opinion: The U.S. Dollar Loses Its Luster as the Uzbek Som Shines

From May 20, 2025, to June 19, 2025, the U.S. dollar declined from 12,885 Uzbek som to 12,625 som, reaching its lowest level since early December 2023. This trend is anticipated to persist. Over the past 30 days, the dollar has depreciated by 2.08% against the som. The Central Bank of Uzbekistan adheres to a flexible exchange rate mechanism, commonly referred to as a floating exchange rate. This approach allows the value of the Uzbek som to be primarily influenced by market forces of supply and demand, rather than being fixed or pegged to another currency. In the context of Uzbekistan, the Central Bank defines the market-determined exchange rate, permitting the som to fluctuate freely based on the interactions between buyers and sellers in the foreign exchange market. In 2017, Uzbekistan transitioned to a flexible exchange rate regime, aligning the som with market conditions and narrowing the gap between the official and parallel exchange rates. This move is expected to enhance export competitiveness, as noted by the European Bank for Reconstruction and Development (EBRD). While the market predominantly determines the exchange rate, the Central Bank reserves the right to intervene in the foreign exchange market to mitigate excessive fluctuations or address significant imbalances. However, it does not maintain a fixed exchange rate. The primary objective of the Central Bank is to uphold price stability, ensuring low and stable inflation. The flexible exchange rate regime empowers the Central Bank to utilize interest rates as a tool to influence inflation and manage the overall economy. Since 2020, the Central Bank of Uzbekistan has been implementing an inflation targeting framework that guides its monetary policy decisions, including those related to the exchange rate. Uzbekistan has recently achieved a remarkable milestone, with its international reserves soaring to an unprecedented $49.6 billion, primarily driven by a substantial increase in gold prices. This significant figure, recorded at the end of last week, represents the highest level of international reserves since the Central Bank of Uzbekistan began tracking this data in 2013. Uzbekistan has been on a remarkable journey of financial growth, marked by a sustained increase in its reserves over the past five months. Since the beginning of the year, the country's reserves have increased by an impressive $8.48 billion, reaching a new historic high of $49.66 billion. In May alone, the reserves saw a substantial boost of $410.2 million, translating to a 0.8% increase compared to April. This consistent upward momentum not only highlights the resilience of Uzbekistan's economy but also demonstrates its ability to adapt and thrive in a dynamic global landscape. Central to this financial ascent has been the role of gold, which has enjoyed significant demand due to its elevated prices in international markets. Over the last month, gold prices surged by 3.27%, rising from $3,280 to $3,390.07 per ounce. When examining the broader trends, it is evident that gold has significantly appreciated, with a striking 25.5% increase since the start of this year and an even more impressive 41.3% surge over...

Finance

Tajikistan Nears Full Transition to Ruble in Trade with Russia, As Bilateral Trade Surges

Tajikistan has nearly completed its transition to ruble payments in trade with Russia, with over 90% of transactions now conducted in Russian currency, according to Firdavs Tolibzoda, head of the National Bank of Tajikistan. This marks a significant shift from 2021, when trade between the two countries was evenly split between the ruble and the U.S. dollar. Tolibzoda highlighted that Tajik banks are working to minimize financial risks by primarily cooperating with Russian banks that are not subject to international sanctions. The shift away from the dollar in Tajik-Russian trade began after Western sanctions were imposed on Russia following its invasion of Ukraine. Over the past three years, Tajik exchange offices have no longer faced periodic shortages of U.S. currency, a problem that was common before the transition to ruble payments. In 2024, bilateral trade between Tajikistan and Russia is expected to reach $1.98 billion, reflecting a 15.6% increase from 2023. However, trade remains highly imbalanced. Russian imports account for 95.2% of total trade, with Tajikistan purchasing oil products and essential goods, while Tajikistan’s exports to Russia amounted to just $96 million, primarily consisting of vegetables, fruits, and mineral products such as ores and concentrates. Despite Russia’s dominant role as Tajikistan’s largest trading partner, China is rapidly catching up. In 2024, Russia accounted for 22.1% of Tajikistan’s total foreign trade turnover, while China’s share reached 21.8%. Trade with China grew by 30.1% over the past year, almost double the growth rate of trade with Russia, indicating a shifting dynamic in Tajikistan’s economic partnerships.

Digitalization

Kyrgyzstan Eyes Digital Currency to Modernize Financial System

The National Bank of the Kyrgyz Republic (NBKR) has announced plans to launch a digital national currency, the digital som. The financial regulator expects the initiative to bolster the country’s financial sector and enhance public administration. New Opportunities The NBKR envisions the digital som transforming Kyrgyzstan’s financial landscape and increasing cashless transactions. One major advantage is improved control over budget spending. Additionally, the digital currency will allow payments even in areas without Internet access - crucial for remote regions with limited connectivity. Using simple technologies such as QR codes and mobile applications, citizens will be able to make quick and convenient payments for goods and services. “The monopoly of central banks to issue money is already ending. Anyone with a computer can create cryptocurrencies and various coins. We are keeping pace with this trend,” noted Akylbek Japarov, Chairman of the Cabinet of Ministers. He added that the Ministry of Finance plans to issue digital currency by 2025, allocating up to 27 billion KGS ($314 million) for digital bonds, treasury bills, and gold-backed coins. Under the government’s plan, the digital som will coexist with traditional cash and non-cash currencies. Authorities have devised mechanisms to facilitate its integration into the financial market. Commercial banks connected to the system will receive digital soms in their digital wallets, while equivalent amounts will be debited from their accounts with the National Bank. Transfers of digital soms between individuals will occur via existing banking infrastructure. Digital Stability The NBKR aims to integrate the digital som into the financial system by the end of 2026, with prototype testing scheduled for early 2025. Experts highlight the potential benefits despite some challenges. Economist Nurgul Akimova explained to Times of Central Asia that the Central Bank’s digital currency will feature robust security measures, including advanced cryptography to prevent fraud and ensure confidentiality. State control over issuance will ensure stability and reliability, distinguishing it from electronic money, which can be vulnerable to bank bankruptcies. Digital currency also offers new opportunities for public administration, particularly in taxation. Akimova noted that programmable features could automate tax deductions and other payments to the state, fostering trust and simplifying interactions between citizens and the government. “For the digital som to succeed, it must be widely accessible and easy to use, complementing existing financial instruments,” Akimova added. “Drawing on global experience and our unique national context, digital currency could become a universal means of payment for everyone. This marks a step toward a more modern, inclusive, and sustainable financial system in Kyrgyzstan.” Challenges Ahead However, certain hurdles remain. Akimova pointed out that introducing the digital som to international markets could pose difficulties, as cross-border payments in digital currencies will require the approval of other states.

Economy

EDB Forecasts Strengthening of the Tenge in 2025

The Eurasian Development Bank (EDB) has projected a strengthening of Kazakhstan’s national currency, the tenge, in 2025. This forecast was presented by Aigul Berdigulova, a senior analyst at the EDB’s Country Analysis Center, during the bank’s macroeconomic outlook for the Eurasian Economic Union (EAEU) member states. Exchange Rate Outlook The tenge’s exchange rate has been under significant pressure, depreciating from 495 KZT per U.S. dollar in mid-November to 523.58 KZT by December 5, according to Kazakhstan’s National Bank. Exchange offices have reported rates as high as 525 KZT per dollar. The National Bank attributes this decline to external factors, such as fluctuating global commodity prices - critical to Kazakhstan’s export economy - and the weakening of the Russian ruble, a key trade partner’s currency. Internal factors, including heightened demand for foreign currency, have further contributed to the tenge’s volatility. To stabilize the market, the National Bank intervened with $1.2 million from the National Fund in November. Despite these challenges, EDB analysts anticipate a rebound in 2024 and beyond. “We believe the current volatility in Kazakhstan’s currency market is temporary,” said Berdigulova. She emphasized that the National Bank and government are employing timely measures, including mandatory sales of 50% of foreign currency earnings by quasi-governmental entities and increased transfers from the National Fund. The EDB forecasts the average annual exchange rate in Kazakhstan to reach 486 KZT per dollar in 2025, a slight depreciation from the projected 466 KZT per dollar in 2024. By 2026-2027, the tenge is expected to stabilize at around 497 KZT per dollar. Inflation and Monetary Policy High inflation remains a concern. The EDB predicts inflation in Kazakhstan will decline to 7.3% by the end of 2025, hindered by rising tariffs for housing and utilities. To manage inflation, the National Bank is likely to maintain a high prime rate, above 15%, through the first quarter of 2025. However, as inflationary pressures ease, the rate may decrease to 11.25% by late 2025. External Influences and Oil Revenues Marina Sobolevskaya, head of the EDB’s Country Analysis Center, acknowledged that the Russian ruble's depreciation would continue to impact the tenge, with the ruble expected to weaken from 92.5 per dollar in 2024 to 104 per dollar in 2025 and 107 per dollar by 2027. On the other hand, Kazakhstan’s currency could gain support from increased oil production, particularly from expanded operations at the Tengiz oil field. Higher exports and foreign currency inflows could mitigate currency fluctuations in the domestic market. Short-Term Recovery The possibility of a short-term recovery for the tenge was also suggested by Murat Temirkhanov, an advisor at Halyk Finance. He attributed recent volatility to a surge in demand for dollars, driven by sanctions-induced ruble depreciation. Temirkhanov argued that the tenge-dollar exchange rate’s sensitivity to the ruble is overstated, given the relatively small share of ruble settlements in Kazakhstan’s foreign trade. Halyk Finance estimates the tenge’s current exchange rate of 525 KZT per dollar is above its fundamental value, which should be closer to 505 KZT per dollar....