Exchange rate

Every state issues its own national currency, but in international trade one currency has to be exchanged for another: to buy equipment from Germany the euro is needed, to buy cotton from Uzbekistan the so‘m is needed. The exchange rate of a currency is how much of another country’s money must be given for one unit of a country’s money, for example how many so‘m 1 US dollar costs; exchanging one currency for another is called convertibility (conversion). The rate forms from demand and supply like other prices: more exports raise demand for the national currency, more imports raise its supply. In Uzbekistan the Central Bank announces the official rate, while commercial banks set their own buying and selling rates (the selling rate is higher than the buying rate, so rates differ between banks); since 2017 the so‘m has been freely convertible for current operations, and the 2019 rates in the book are outdated. If the foreign currency rate rises, exports become more profitable and imports dearer, and if it falls, the opposite; sharp changes unsettle the economy, so a smooth change is a sign of a healthy economy. Cryptocurrency is a digital asset whose value is very volatile and risky; in Uzbekistan the only means of payment is the so‘m, crypto assets are regulated by special rules, and money decisions should be discussed with adults.