Exchange rate regimes range between two extremes. Under a fixed rate, the central bank maintains a set level by depleting reserves or administratively distributing currency. Under free floating, the market determines the rate entirely. Between them lie intermediate options: managed floating, bands, and pegging to a currency basket.
Each regime has a cost. Fixed rates provide predictability but require reserves and, when divergence from market levels accumulates, end with sharp one-time adjustments. Floating rates enable adjustment to external conditions but transfer fluctuations directly to economic participants.
After liberalizing its currency market in 2017, Uzbekistan shifted to market-based exchange rate formation, with central bank operations aimed at smoothing excessive fluctuations rather than maintaining a specific level. This aligns with an inflation targeting regime, where price stability takes priority over the exchange rate.
For investors, the practical conclusion: under a floating regime, the exchange rate is guaranteed by no one, and high sum-denominated returns include compensation for currency risk rather than a free premium.