Skip to main content
May 31, 2009

Speculator: Uzbek dreams

The effects of the credit crunch in a country without credit: will we all soon keep cash under the bed?

No credit, no crunch; it might seem a logical equation. In Uzbekistan, however, the crunch came without the credit, and globalization is showing its all-too-visible hand. Most Uzbeks do not trust banks, and commerce involves toting around sackfuls of currency. A safe haven is cash under a mattress, and for most people credit involves families and friends or 50 percent interest rates.

The economy grinds along a little above subsistence. The country’s property boom is collapsing. Uzbeks were investing remittances from abroad in apartment buildings as a perceived safe haven. But when the global crisis caused emigrant Uzbeks to be laid off, the bubble burst. Ironically, Uzbeks are now hoarding dollars, which is not my idea of a safe haven but – as in the US – cash is king, and the greenback is its most liquid form.

In the last days of the Soviet Union, President Gorbachev sought advice from the same western economists who designed the global financial system now collapsing around our ears. They warned him that the overhang of massive unspent Soviet savings would cause inflation. So he combined western counsel with Soviet-style diktat and simply confiscated the savings balances, which is one reason why, despite his popularity in the West, Russians would not vote for him.

The bereft Uzbek citizens got the inflation anyway: once with the Soviet ruble, and again with the independent Uzbek som, so the value of their pensions followed their savings around the U-bend. In the meantime, Russian apparatchiks looted public assets and gave them to party bosses and gangsters who ‘bought’ them with loans from the Treasury in rapidly devaluing currency. Western advisers did not call it a bailout but – in now-familiar terms – assured the Kremlin it was a necessary expenditure of social capital.

In Uzbekistan, the dollar is now worth 1,500 som. Street value is 1,800 som, which is another reason why few people want to deal with banks. The biggest denomination note is 1,000 som, so buying an airline ticket, for example, would require a baggage trolley full of cash.

Today the old oligarchs of New York and Washington, like the new Russian oligarchs, are shamelessly looting the public purse while assuring us that ‘there is no alternative’. The dollar is like Tinker Bell, kept aloft only by the belief that we can defy the laws of economics and gravity. Hoards of cash sit around unused because no one trusts investments that could disappear overnight between the machinations of governments and banking principals.

As an advanced technological economy, there is no need for the US to drive the printing presses to the brink of breakdown. A few clicks of a banker’s keyboard are all it takes to conjure trillions of dollars out of thin air. Even the Chinese have woken from their complacency and are beginning to worry about their T-bonds.

Which leads to central Asian speculation. I’ve seen the future – and it’s not pretty. Will we soon sleep unsoundly on mattresses lumpy with paper currency?