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CURRENT ISSUES OF MONETARY POLICY
Shomurodov Ravshan Tursunkulovich
Associate Professor of the Department
“Social-humanitarian sciences and Economics”, Ph.D. Branch of the Federal State
Budgetary Institution of Higher Education “National Research University of the
Moscow Energy Institute” in the city of Tashkent. E-mail: r.shomurodоv@mail.ru
ORCID:0000-0002-9087-104X
Khakimov Khafizbek Khamza ogli
Student of the Department “Social-humanitarian sciences and Economics”
Branch of the Federal State Budgetary Institution of Higher Education “National
Research University of the Moscow Energy Institute” in the city of Tashkent.
E-mail: hafizbekhakimov@gmail.com
https://doi.org/10.5281/zenodo.15068471
Abstract
Improving the practice of using monetary policy instruments, in turn, is
important in ensuring the stability of the national currency, prices, balance of
payments, liquidity of the banking system and economic growth, development of
financial markets, especially stock, capital, securities, money and foreign
exchange markets, increasing investment efficiency earns.
In developed countries such as the United States, Japan and Germany, the
central banks have accumulated many years of theoretical, practical and
methodological experience in ensuring and strengthening economic growth,
macroeconomic and financial stability based on increasing economic and
investment activity through the effective use of monetary policy various
monetary models are effectively used in its activities.
Over the past years, the regulatory and methodological foundations of the
banking system have been formed and strengthened in Uzbekistan. Innovative
banking services and financial technologies began to be used. Also, the Decree of
the President of the Republic of Uzbekistan dated September 13, 2017 No. PP-
3272 “On measures to further improve monetary policy” provides for measures
to improve coordination practices in the field of general economic, fiscal and
monetary policy, the use of interest-bearing instruments used in monetary
policy operations to provide and attract liquidity. urgent tasks are being set to
improve monetary policy, such as expansion [1].
The issue of the use of monetary policy instruments has been thoroughly
studied by economists in the economic literature and relevant scientific
conclusions and practical recommendations have been formed. In particular, M.
Friedman concludes that the central bank has sufficient capacity to manage the
money supply, and at the same time concludes that inflation is not a
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multifactorial process [2]. This conclusion is based on the fact that the Central
Bank can manage money supply and interest rates using open market
operations and discount operations. Indeed, the purchase of securities by the
Central Bank on the open market will lead to an increase in the reserves and
monetary base of the banking system, an increase in the money supply and a
decrease in short-term interest rates.
In particular, a group of economists has proposed the introduction of a
100% mandatory reserve requirement for deposits of commercial banks in
order to actively use the reserve policy [3]. However, some economists have
expressed a negative view of the mandatory reserve policy. For example,
according to the well-known foreign economist F. Mishkin, mandatory reserve
requirements have many shortcomings, including the possibility of liquidity
problems in banks [4].
McCallum, a foreign economist, argues that the demand for money is not
stable, so the central bank’s interest rate is the main instrument of monetary
policy [5]. Foreign economist According to V. Yurovitsky, in the absence of
mandatory reserve requirements, all issued money is an asset, which in turn
leads to an increase in deposits of commercial banks [6].
According to one of the foreign economists S. Moiseev, open market
operations are now the main tool of monetary policy in developed countries.
Open market operations allow central banks to enter into transactions on their
own initiative, that is, to be more flexible in determining the timing and volume
of monetary operations [7].
Analysis of the structure of the broad money supply shows that since 2017,
with the liberalization of monetary policy, the share of deposits in the structure
of the broad money supply has increased significantly from 16.8 percent in 2016
to 35.1 percent in 2017 and for 6 years has been more than 30 percent on
average. As a result of a significant increase in deposits in the national currency
in the structure of the broad money supply to 60.2 percent in 2024, the share of
deposits in foreign currency has significantly decreased to 20.5 percent. As of
January 1, 2025, the level of cash supply to the Uzbekistan economy was 19.3%,
the inflation rate was 9.8%, and the interest rate was 13.5% (Table 1).
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Table 1
The structure of the Broad money (monetary aggregate M3) in the
Republic of Uzbekistan [8]
Years
The
currency
(monetary
aggregate M0)
The deposits in
national
currency
The deposits in
foreign currency
2018
26.5
43.2
30.2
2019
25.5
44.6
29.9
2020
22.2
46.9
30.8
2021
19.7
49.0
31.2
2022
22.3
52.6
25.1
2023
21.5
56.0
22.5
2024
19.3
60.2
20.5
It should be noted that indirect monetary policy instruments allow Central
banks to increase the effectiveness of monetary policy. This can be seen in
ensuring the stability of the national currency and prices, achieving economic
growth, macroeconomic and financial stability.
A significant growth rate of the money supply and cash is associated with
the liberalization of monetary policy conducted by the Government of
Uzbekistan jointly with the Central Bank in 2017. This year, the growth rate of
money supply and cash has increased significantly due to the fact that they have
been looking at them. As for the significant growth rate of the money supply and
cash, it is associated with a significant increase in the nominal gross domestic
product with a simultaneous increase in the real demand for money and an
increase in investment activity in the country in last years (Table 2).
Table 2
Change in the growth rate of the Broad money, currency and Interest
rate in percentage in the Republic of Uzbekistan [9]
Years
Growth rate of the
Broad money
(monetary aggregate
M3)
Ggrowth rate
currency (monetary
aggregate M0)
Change in the
Interest rate
2013
20.3
28.7
12.0
2014
15.7
22.0
10.0
2015
24.3
17.6
14.0
2016
23.5
24.0
9.0
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2017
40.2
47.0
14.0
2018
14.1
14.0
16.0
2019
13.9
9.4
16.0
2020
17.7
2.8
14.0
2021
29.7
15.0
16.0
2022
30.2
47.3
15.0
2023
12.1
8.1
14.0
2024
30.6
16.9
13.5
From the analysis and dynamics of monetary indicators, it is clear that in
2024 the growth rate of the money supply and cash was higher than the
refinancing rate. The inflow of foreign direct investment had a positive impact
on economic growth; the demand for money increased significantly in 2024. But
the Central Bank simultaneously used other monetary policy instruments to
regulate the growth rate of monetary aggregates. On March 20, 2025, the Central
Bank's board decided to raise the base rate by 0.5 percentage points to 14% per
annum. This decision is aimed at creating sufficient conditions for limiting
inflation expectations, taking into account possible inflation risks in the coming
months and achieving the 5% target level in the medium term.
Conclusion.
In our opinion, it is expedient to take the following measures to address the
above-mentioned problems:
1. In order to increase the role of monetary policy in the context of the
Globalization, it is necessary to introduce the practice of the Central Bank
issuing primary, secondary and seasonal discount loans to commercial banks. In
particular, the conversion of open market operations into bonds and certificates
of deposit of commercial banks with a current level of liquidity of 50% and
above, in particular, the Central Bank's mandatory reserve rate on deposits in
foreign currency attracted by commercial banks for more than 1 year. should be
set at the rate level.
2. In order to develop the secondary market in Uzbekistan, it is necessary to
expand indirect monetary policy instruments, including pawn and overdraft
mechanisms, currency swaps, overnight loans, REPO and REPO operations. This
will help the Central Bank to attract excess liquidity in circulation, effectively
regulate the money supply, reserve money, credit volume, banking system and
money market liquidity, have a direct impact on the real sector of the economy
and further enhance the role of monetary policy in the economy.
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2. The transformation of long-term bonds and certificates of deposit of
commercial banks with a high level of liquidity into the object of open market
operations will increase the volume of open market operations of the Central
Bank. This, in turn, will ensure that the Central Bank has an effective impact on
the money market and the liquidity of the banking system. Uzbekistan has
sufficient opportunities and conditions for this. That is, there are commercial
banks whose solvency and liquidity are at the level of demand. Second, there are
large-scale issuance of certificates of deposit and long-term bonds by
commercial banks.
In conclusion, the implementation of these scientific-theoretical proposals
and practical recommendations will play an important role in further enhancing
the role of monetary policy in modern Uzbekistan.
List of used literature:
1. Resolution of the President of the Republic of Uzbekistan dated September 13,
2017 No. PP-3272 "On measures to further improve monetary policy".
www.lex.uz.
2. Friedman M. If money spoke ... Per. from English. - M.: Delo, 1999. - S. 132-134.
3 Mises L. Tne Theory of Money and Kredit. –Indianapolis, 1980. –P. 446-448.;
Friedman M. Fundamentals of monetarism. Per. from English. - M.: TEIS, 2002. -
S. 41-43.
4. Mishkin F.S. Economic theory of money, banking and financial markets. 7th ed.
Per. from English. - M.: LLC "I.D. Williams", 2013. -p. 490.
5. McCallum, B.T. Robustness Properties of a Rule for Monetary Policy. -
Carnegie-Rochester Conference Series on Public Policy 29, 1988. - Р. 173-203.
6. Yurovitsky V. Evolution of money: money circulation in the era of change. M.:
GrossMedia, 2005. - S. 96.
7. Moiseev S.R. Operations of central banks in the open securities
market//Finance and credit. - Moscow, 2003. - No. 6. - S. 32-40.
8. The official reports of Data base The Central Bank of the Republic of
Uzbekistan in 2025 - www.cbu.uz.
9. The table is compiled by the author on the basis of data from the official
website of the Central bank of the Republic of Uzbekistan. www.cbu.uz
