Tashkent, Uzbekistan (UzDaily.com) -- What should people look for when buying a currency suitable for storing savings? Let’s look at the main factors to consider here, and analyze the benefits and risks of various options.

Storing money “under the mattress” in national currency is what most citizens do, considering this method as the safest and most time-tested. However, there is a big risk that savings will depreciate over time - because their purchasing power may decrease significantly due to inflation.

In 2023, inflation in Uzbekistan amounted to 8.77%. Its predicted level for this year exceeds 10%. In such a situation, it may not be wise to keep money in scrips at home. After all, in a year you will be able to buy less with them than now.

It makes sense to resort to diversification of your savings: keep some of them in national currency, and some in foreign currency.

Informed decision

What to look for when choosing a currency to store your savings?

1. One of the key factors is the stability of the chosen currency. You can analyze how it behaved historically, and also study the forecasts of economic experts regarding changes in its value in the near future.

2. Currency liquidity (the ability to freely exchange and pay for currency) is also important, especially if in the future you need to quickly convert your savings into another currency or use them for large transactions.

3. The purchasing power of savings can be significantly affected by the level of inflation in the country. Because of this, choosing a currency that maintains its value in an environment of high inflation can be extremely important.

4. Be sure to take into account the political stability of the country of the currency and international relations, which also affects the value and stability of the currency in the future.

Benefits and Risks

Let’s look at the advantages and disadvantages of several currencies for saving savings.

Uzbek soums (UZS)

Advantages: ease of use within the country, no need for conversion when making local transactions.

Risks: possible inflation, economic instability, which could lead to a reduction in the price of the sum.

US dollar (USD)

Advantages: stability, recognized reserve currency status, ease of conversion.

Risks: currency risk, possible impact of world economic events on the dollar exchange rate.

Euro (EUR)

Advantages: The second largest reserve currency in the world, which is used in 20 countries of the Eurozone.

Risks: currency risk, an economic crisis in one or several EU countries could lead to the devaluation of the euro.

Swiss franc (CHF)

Advantages: Switzerland’s political neutrality protects the national currency from geopolitical risks, and low inflation helps preserve the purchasing power of the franc.

Risks: Currency risk, lower liquidity of the Swiss franc compared to the euro or US dollar, which may make it less convenient for international transactions.

The choice of currency for storing savings in Uzbekistan depends on your individual financial goals and preferences. The benefits and risks of each currency must be carefully weighed, as well as current economic and political realities.

Benefits and Risks

Let’s look at the advantages and disadvantages of several currencies for saving savings.

Uzbek soums (UZS)

Advantages: ease of use within the country, no need for conversion when making local transactions.

Risks: possible inflation, economic instability, which could lead to a reduction in the price of the sum.

US dollar (USD)

Advantages: stability, recognized reserve currency status, ease of conversion.

Risks: currency risk, possible impact of world economic events on the dollar exchange rate.

Euro (EUR)

Advantages: The second largest reserve currency in the world, which is used in 20 countries of the Eurozone.

Risks: currency risk, an economic crisis in one or several EU countries could lead to the devaluation of the euro.

Swiss franc (CHF)

Advantages: Switzerland’s political neutrality protects the national currency from geopolitical risks, and low inflation helps preserve the purchasing power of the franc.

Risks: Currency risk, lower liquidity of the Swiss franc compared to the euro or US dollar, which may make it less convenient for international transactions.

The choice of currency for storing savings in Uzbekistan depends on your individual financial goals and preferences. The benefits and risks of each currency must be carefully weighed, as well as current economic and political realities.

Contribution arithmetic

The purchased currency may also not lie as a dead weight, but generate income. To do this, you can open a bank deposit: they are available not only in national currency, but also in foreign currency. When answering the common question about which deposit is more profitable to open, I advise you to look at the numbers.

At the moment, the highest interest rate on foreign currency deposits is 7% per annum, subject to placement of funds for 25 months. Let’s say you have US$10,000 and you open a deposit with it. During this period, the bank will pay you US$1,457.92, and when monthly interest is calculated with their subsequent capitalization (adding to the deposit amount), the income will be US$1,564.66. As you can see, this is a pretty good investment option, and the larger the deposit amount, the higher the income will be.

Let’s consider the option of opening a deposit for the same amount, but in soum equivalent. For example, let’s take the dollar exchange rate against the soum from the archive of exchange rates of the Central Bank of the Republic of Uzbekistan.

For example, on 1 February 2022, at the Central Bank exchange rate, 1 dollar was worth 10,804.86 soums. Thus, US$10 thousand was equal to 108,048,600 sums. A sum deposit can be opened at an average interest rate of 22% per annum. The income from such a deposit for 25 months will be more than 49.5 million soums. If we reinvest the interest on the total deposit monthly, then at the end of the term we will receive 170,142,041.70 soums, of which the profit on the initially invested amount will be 62,093,441.70 soums.

What will this result be in dollars? After 25 months, at the dollar exchange rate on 1 March 2024, equal, according to the Central Bank, to 12,496.80 soums, the income from our soum deposit when converted into American currency will be 13,614.84 dollars. Of these, the net profit will be equal to US$3614.84 versus US$1564.66 for the dollar deposit for the same period.

Sort into pairs

The ability to react flexibly to changes in exchange rates is provided by the international forex market.

To work on it, you don’t need to leave your home: all transactions take place online through brokers’ trading terminals. But you should understand that in this case you are not buying real currency, but entering into a kind of “deal” to change its price in the future. The entire trading process takes place through a broker, who provides the opportunity to trade different currency pairs.

The most popular currency pairs: EUR/USD (euro/dollar), USD/JPY (dollar/Japanese yen), GBP/USD (British pound/dollar), USD/CHF (dollar/Swiss franc), etc.

In theory, the profit margin in the foreign exchange market is almost unlimited, as is the level of risk.

Potentially leveling out possible financial losses on Forex can be done by paying great attention to risk management, market research, and also working with trusted brokers.

Aziz Abdusalomov, market analyst at Alpari