Coin Reflects Uzbekistan Inflation|
August 22, 2013
One of the reasons the United States steadfastly refuses to issue bank notes in denominations higher than $100 or withdraw the 1-cent coin is that such a move sends a graphic message to the world that inflation is a problem. In the mean time the U.S. struggles to get a dollar coin into circulation while it costs more than one cent to produce the cent, something that likewise suggests inflationary pressures are making serious advances.
This isn’t necessarily a problem elsewhere in the world. In Central Asia the Uzbek Central Bank in Uzbekistan recently announced it is issuing a 5,000-soum bank note for the first time, while its coinage denominations continue to “grow” as well. The highest denomination coin now in circulation in Uzbekistan is the 500 soum introduced two years ago.
The coin denominations now in use tell the true story of the domestic economy. Currently there are no 1-, 3-, 5-, 10-, 20-, or 50-tiyin or 1-, 2-, 5-, or 10-soum coins to be found in circulation. Likewise, the 1-, 5-, and 10-soum bank notes are nowhere to be found. All of these have been issued and used within the past decade. The official exchange rate was pegged at 2,093.1 soums to the dollar at the time this article was being written, but the black market rate is likely totally different.
The story of Uzbekistan’s coins and bank notes may sound familiar to anyone who has followed the modern money of this region. Uzbekistan was part of the Soviet Union, gaining its independence when the Soviet Union collapsed in 1991. Being ill-prepared to issue its own money Uzbekistan, as did other new nations rising from the Soviet ashes, joined Russia in the use of the former Soviet ruble system.
The Soviet ruble was replaced by the Russian ruble in July 1993, this primarily being comprised of bank notes issued by the Bank of Russia. Coins were slower to re-emerge. While some CIS nations were quick to introduce their own currencies Uzbekistan instead continued to circulate both Soviet and Russian money. On Nov. 15, 1993, both monetary systems were replaced by the Uzbek som, the som being on par with both ruble systems.
Inflationary problems are evident through this First Som. Bank notes were issued in denominations as high as 10,000 som. No coins were issued.
The Second Som system followed in July 1994. This time the exchange rate was one new som to 1,000 old som. The som was now equal to 100 tiyin, with an official exchange rate of 25 som to the US dollar. This time metal coins as low as 1 tiyin were issued.
Inflationary pressures become obvious through the coins and bank notes. The 1-tiyin coin quickly vanished from circulation. It was billed by the media as being “the world’s most worthless coin.” Two series of coins have been issued by Uzbekistan since 1994, both being considered within the Second Som currency system. The first uses Uabek language script in Cyrillic, while the second uses the Latin alphabet.
Inflation in Uzbekistan, just as it is in the United States and most other countries, is a politically sensitive issue. Rather than advertise that inflationary pressures exist by once more reforming the currency system Uzbekistan has instead resorted to quietly issuing higher denomination coins and bank notes. Officially inflation for the first half of 2011 was announced to be a mere 3.6 percent. To put it politely, this is likely an optimistic figure.
To its credit one major difference between how Uzbekistan has dealt with inflation through its currency system when compared to others is the central bank’s resistance to totally recalling its coinage. In most countries if inflation gets totally out of hand metal coins vanish, with an almost endless parade of higher denomination paper bank notes following.
Uzbekistan appears to have followed the modern model set by Turkey, a currency system through which coins continue to be issued even though the lowest denominations disappear, while new higher denominations are being introduced.
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