INTERNATIONAL JOURNAL OF ARTIFICIAL INTELLIGENCE
ISSN: 2692-5206, Impact Factor: 12,23
American Academic publishers, volume 05, issue 05,2025
Journal:
https://www.academicpublishers.org/journals/index.php/ijai
page 1000
CURRENT ISSUES OF MODERN MONETARY POLICY
Khulkar Azimova
Senior Lecturer, Department of “Accounting and Auditing”,
Karshi State Technical University, Uzbekistan
e-mail:
Annotation:
This article describes the main urgent problems of monetary policy, balancing
interest rates, liquidity problems in the banking system, and ways to eliminate the problems,
and analyzes them based on statistical data. The article also presents conclusions and
proposals for eliminating and improving the current problems of monetary policy in
Uzbekistan, countries that are currently facing the most urgent problems in monetary policy.
Keywords:
monetary policy, fiscal policy, liquidity problem, digital currencies, monetary
policy, macroeconomic stability, reserve requirements.
Introduction.
Monetary policy is a monetary-credit policy implemented by the
central bank to ensure economic stability and control inflation. Through monetary policy,
measures are taken to regulate the money supply in circulation, aiming to maintain price
stability, control inflation, support real output growth, and promote overall economic
development. As an integral and inseparable part of national economic policy, monetary
policy has long been recognized as playing a crucial role in a country's economy, as proven
by global experience. It continues to be effective in today's economic environment. Therefore,
monetary policy receives special attention from economists, experts, and governments in
global banking practices, including in Uzbekistan. In recent years, changes in the global
economy have given rise to new challenges for monetary policy. When central banks increase
interest rates to curb inflation, economic growth may slow down. Higher interest rates make
borrowing more expensive, which leads banks to issue loans to businesses and individuals at
higher rates. This reduces investment and consumer spending. As a result, demand decreases
and the rate of price growth slows. However, raising interest rates also negatively affects
economic growth because companies reduce their investments, potentially leading to job cuts
and a decline in overall economic activity. Hence, it is essential to study the pressing issues
of monetary policy and implement appropriate strategies accordingly.
Analysi sand Results.
The central bank seeks to maintain a balance between
controlling inflation and supporting economic growth. In this context, monitoring liquidity
issues within the banking system is of great importance.
The following problems can be identified within the banking system: insufficient liquidity in
banks can lead to a contraction of the credit market; increasing mistrust among financial
institutions; global economic instability; geopolitical tensions; trade wars; and pandemics, all
of which have contributed to heightened economic uncertainty. Central banks need to
respond to these developments with flexible and adaptive monetary policies.The impact of
digital currencies and cryptocurrencies may offer new tools for central banks to implement
monetary policy effectively through the introduction of Central Bank Digital Currencies
(CBDCs). However, cryptocurrencies can also pose risks to financial system stability and
may be difficult to regulate. In particular, it is appropriate to implement specific solutions to
INTERNATIONAL JOURNAL OF ARTIFICIAL INTELLIGENCE
ISSN: 2692-5206, Impact Factor: 12,23
American Academic publishers, volume 05, issue 05,2025
Journal:
https://www.academicpublishers.org/journals/index.php/ijai
page 1001
address each of the emerging challenges. The following measures are proposed to solve these
problems:
Developing strict and clear strategies to reduce inflation;
Coordinating monetary policy with fiscal policy;
Monitoring liquidity in the banking system and maintaining optimal interest rates;
Adapting to the digital economy and utilizing modern technologies.
We can see from the following data that the dynamics of the central bank's key rate
over the years has been volatile and that it has been able to regulate inflation, namely:
1. 18.03.2022 - 17% per year
2. From 11.09.2020 to 17.03.2022 14%
3. From 15.04.2020 to 11.09.2020 15%
4. From 25.09.2018 to 14.04.2020 16%
5. From 28.06.2017 to 24.09.2018 14%
6. From 01.01.2015 to 27.06.2017 9%
7. From 01.01.2014 to 31.12.2014 10%
8. From 01.01.2011 to 31.12.2013 12%
9. From 15.07.2006 to 31.12.2010 14%
10. From 21.12.2004 to 14.07.2006 16%
11. From 05.07.2004 to 20.12.2004 18%
12. From 10.09.2003 to 04.07.2004 20%
Developing a firm and clear strategy to reduce inflation means taking specific
measures by the central bank and the government. At its core, through tightening monetary
policy, the central bank raises interest rates, restricts lending, and reduces the amount of
excess money in the economy. By controlling budget expenditures, the government aims to
reduce excess spending, limit additional cash inflows into the economy, and increase the
supply of goods and services by encouraging local production and supporting local
production, thereby preventing sharp price increases. In managing exchange rate policy, the
issue of preventing import prices from rising by maintaining a stable national currency is of
paramount importance.
Uzbekistan's gross domestic product (GDP) growth is projected to be around 5.3% in
2025 (World Bank). According to the state budget, GDP growth for 2024 was planned at 5.6–
5.8%. In 2019-2023, growth rates averaged around 4–5% [5]. Indeed, ensuring
macroeconomic balance is considered the foundation of the country's economy. To achieve
macroeconomic stability, the country conducts its fiscal (tax-budget) and monetary (monetary)
policies. Coordination of monetary policy with fiscal policy means ensuring consistency
between the monetary policy of the central bank and the fiscal policy of the government .
This helps to control inflation, stimulate economic growth, and maintain economic stability.
The main ways of coordination are as follows:
1. Inflation management-if the central bank increases interest rates and reduces the money
supply, the government must also reduce excess budget spending.
2. Stimulating economic growth - if the economy is slowing down, fiscal policy can support
growth by lowering taxes or increasing public investment.
3. Controlling public debt - if the government does not borrow excessively, the central bank
will not need to take drastic measures to curb inflation.
If monetary and fiscal policies conflict, for example, if the government spends too
much money while the central bank is trying to reduce inflation, the economic balance can be
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disrupted [2]. For this reason, it is important to coordinate them. When it comes to
controlling liquidity in the banking system and maintaining optimal interest rates, liquidity
refers to the amount of cash and immediately available assets in the banking system. If banks
do not have sufficient liquidity, lending will decrease and economic activity will slow down.
Conversely, excess liquidity can increase inflation. In controlling liquidity. Central bank
interventions, i.e. the central bank can provide monetary resources to commercial banks or
withdraw excess money from the economy to prevent a liquidity crisis. Minimum reserve
requirements, which are the reserve requirements that the central bank sets for commercial
banks, help control the amount of money in the banking system. In open market operations,
the central bank manages liquidity by buying or selling bonds. Interest rates are an important
tool for regulating the flow of money in the economy, and it is necessary to use the optimal
level of interest rates. High interest rates make it more expensive to borrow, which results in
reduced consumption and investment, and lower inflation. Low interest rates make it cheaper
to borrow, stimulating economic growth, but inflation may increase. Therefore, central banks
control liquidity and try to keep interest rates at an optimal level, which helps to maintain
economic stability and curb inflation. The financial stability outlook for the first half of 2024
highlights the financial conditions and vulnerabilities in the economy of Uzbekistan, the
situation in the asset market, the results of the banking system's solvency and liquidity macro
stress test, and the situation related to climate change. Recent changes in the macroprudential
policy pursued by the Central Bank, as well as potential external and internal risks that could
affect financial stability, are also reflected. In the first half of 2024, financial stability was
maintained in the banking system of Uzbekistan. The total and Tier 1 capital adequacy ratios
of the banking system were 17.3 and 14.2 percent, respectively exceeding the established
minimum requirements. The relatively low formation of the Uzbek risk premium within the
historical average trend, as well as positive developments in the banking sector, led to an
easing of financial conditions in Uzbekistan . The financial stress index for the banking
system also declined. The increase in the share of highly liquid assets in total assets of banks,
as well as the decrease in the level of unsecured financing in total liabilities, indicate that
concerns about liquidity vulnerabilities in banks have decreased.
The countries currently facing the most pressing monetary policy challenges around
the world include the United States, the European Union, the United Kingdom, Australia, and
Canada. These countries are trying to find a balance between high inflation and the need to
lower interest rates. In the United States, although the Federal Reserve aims to lower inflation
to 2%, core inflation currently hovers around 3.3%. This limits the scope for interest rate cuts.
Inflation in the eurozone is also higher than before the pandemic, and the central bank is
acting cautiously. Also, low economic growth and high debt are at the forefront of the IMF's
global policy agenda for 2024. Many developing countries are facing problems due to
external debt pressures and declining foreign investment. In particular, some countries in
Latin America, Africa, and Asia are struggling with slowing economic growth and increasing
difficulties in obtaining external financing. In global practice, special attention is paid to
adapting to the digital economy and using modern technologies. The digital economy is a
system for managing and developing economic processes using modern technologies such as
information technology, artificial intelligence, blockchain, and big data. The main areas of
adaptation are the development of digital payment systems - expanding cashless payment
systems, cooperation with fintech companies, the introduction of blockchain and digital
currencies - central banks can conduct monetary policy more effectively by developing
INTERNATIONAL JOURNAL OF ARTIFICIAL INTELLIGENCE
ISSN: 2692-5206, Impact Factor: 12,23
American Academic publishers, volume 05, issue 05,2025
Journal:
https://www.academicpublishers.org/journals/index.php/ijai
page 1003
national digital currencies (CBDCs). Artificial Intelligence and Big Data Analysis - data-
based decision-making, market forecasting and improving economic policy, digital
transformation of the banking system - expanding online banking services, creating user-
friendly interfaces for customers and increasing security, regulatory adaptation - improving
laws regulating the digital economy, supporting and strengthening the use of new
technologies, using modern technologies to increase economic efficiency, control inflation
and liquidity It will help central banks to do this. At the same time, new security and privacy
issues will also need to be taken into account.
If we analyze the situation in Uzbekistan from the perspective of the question of how
this situation is, one of the main problems of the current monetary policy in Uzbekistan is
inflationary pressure and credit constraints. Despite the continuation of the Central Bank's
tight monetary policy in 2024, inflation remains at a stable level. Although inflation fell to
9.1% in January, it was forecast to remain around 10% throughout the year. This is mainly
due to the increase in energy prices and the impact of economic reforms. At the same time,
commercial banks are taking measures to restrict lending, including restrictions on consumer
and mortgage loans, as well as car loans. This may lead to a slowdown in growth in the credit
market. In addition, the slowdown in the Russian economy may negatively affect Uzbek
exports and remittances from labor migrants. This may reduce domestic demand and pose a
threat to economic growth. The importance of monetary policy in ensuring macroeconomic
and financial stability in the economy is high, and its elimination of urgent problems reflects
its relevance to the goal.Conclusion and suggestions: In conclusion, it can be said that the
Central Bank of the Republic of Uzbekistan is implementing a monetary policy aimed at
maintaining domestic economic stability, which is of paramount importance.
We present the following proposals to address the pressing problems of contemporary
monetary policy:
Firstly, further improving the stability of the banking system through the effective use of
monetary and credit instruments;
secondly, to further strengthen the state's monetary policy by improving the level of
development of the financial system;
thirdly , to expand the coordination of monetary policy with fiscal policy;
fourth , developing solid and clear strategies to reduce inflation;
As a result, urgent problems of monetary policy will be eliminated, and macroeconomic and
financial stability in the country will further improve.
References:
1. The “ Uzbekistan - 2030 Strategy ” of the President of the Republic of Uzbekistan dated
September 11 , 2023 Decree No. PF - 158
2. Z.Mamadiyorov, M.Makhmudova, M.Kurbanbekova. Banking. Textbook. T.:-Innovative
Development Publishing House. 2021. 158 pages.
3. Decree of the President of the Republic of Uzbekistan dated May 12, 2020 “On the
Strategy for Reforming the Banking System of the Republic of Uzbekistan for 2020-
2025”.
4.
- Official website of the Central Bank of the Republic of Uzbekistan.
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INTERNATIONAL JOURNAL OF ARTIFICIAL INTELLIGENCE
ISSN: 2692-5206, Impact Factor: 12,23
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Journal:
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