"Not to maintain the exchange rate." The Central Bank of Uzbekistan will publish a currency intervention strategy.

**The Central Bank of Uzbekistan will present a foreign exchange intervention strategy to improve transparency**

The Central Bank of Uzbekistan is in the final stages of developing a foreign exchange intervention strategy, which it plans to publish in order to increase the transparency of its foreign exchange market policy. This was announced on August 24 by Central Bank Governor Timur Ishmetov at the Silk Road Finance & Technology Forum in Tashkent, as reported by Gazeta.

According to Ishmetov, the regulator is striving to more thoroughly explain to the market the reasons for its participation in foreign exchange trading.

"As I have already said, we have transitioned to a floating exchange rate. However, many questions arise regarding the Central Bank's participation in the foreign exchange market, given that we are a major buyer of gold and, therefore, sell significant volumes of foreign currency on the market, as we need to remove excess liquidity in the national currency," Timur Ishmetov explained.

The Central Bank Governor announced that the foreign exchange intervention strategy is in the final stages of preparation.

"We are finalizing our strategy and will literally publish it to show the market: yes, we are intervening, but not to maintain any specific exchange rate. This is related to our gold purchase operations," he emphasized.

Timur Ishmetov also noted that the Central Bank intends to generally increase the transparency of its operations and communications with the market.

He recalled that in July, the International Monetary Fund completed an assessment of the Central Bank of Uzbekistan under its Central Bank Transparency Code. The results of this assessment are also planned to be made public.

"We ourselves requested this technical assistance to conduct a diagnostic: where we stand and how we can improve our communications, as we are fully committed to implementing the announced reforms and have nothing to hide. We will increase transparency," the head of the Central Bank stated.

Furthermore, Timur Ishmetov announced that the Central Bank will publish a plan for further capital account liberalization.

"There are many questions regarding capital account liberalization. We will finalize the sequence of these reforms and publish it. This way, we will focus on transparency and continue to fulfill our core mandate," he said.

Earlier at the forum, the Central Bank Governor stated that the som exchange rate would remain flexible and market-oriented. He noted that the IMF recently reclassified Uzbekistan's exchange rate regime as floating. The regulator intends to gradually liberalize the capital account, while simultaneously strengthening institutions, safeguards, and risk management.

The Central Bank intervenes in the domestic foreign exchange market to "sterilize," or reverse the withdrawal of, additionally issued money from the economy. In other words, to buy gold, the regulator prints soums, then purchases the precious metal from producers, sells it abroad, and receives foreign currency. The currency is sent to the domestic foreign exchange market, banks buy dollars for soums, and thus the additionally issued soums are withdrawn.

The removal of "excess" liquidity is a necessary measure to prevent excessive inflationary pressure and the emergence of macroeconomic imbalances. Otherwise, the money supply would automatically increase by the value of the purchased gold, leading to accelerated inflation.

The Central Bank states that it conducts foreign exchange interventions based on the principle of "neutrality" of gold and foreign exchange reserves. This principle implies that the Central Bank maintains the volume of net foreign exchange sales within the monetary gold purchased during the year; that is, the regulator strives to sell foreign exchange for an amount lower than the gold purchased. In other words, during operations on the domestic foreign exchange market, the Central Bank does not pursue the accumulation or use of existing gold and foreign exchange reserves, but rather operates on the principle of preventing excessive growth of the money supply.

In many countries, gold producers export the precious metal without the participation of the central bank. This eliminates the need for the regulator to participate in foreign exchange transactions, as the proceeds from gold sales are used for production or other purposes independently or sold on the domestic foreign exchange market.