This article analyzes the main components of the monetary system, its economic relations and its impact on financial stability. The article explores the relationship between commercial banks, central banks and other financial institutions in order to show the principles of functioning of the monetary system and its impact on economic growth.
Keywords: monetary and credit system, financial control, financial stability.
В данной статье проанализированы основные составляющие денежно-кредитной системы, ее экономические связи и влияние на финансовую устойчивость. В статье исследуются взаимоотношения между банками, центральными банками и другими финансовыми учреждениями с целью показать принципы функционирования денежно-кредитной системы и ее влияние на экономический рост.
Ключевые слова: денежно-кредитная система, финансовый контроль, финансовая устойчивость.
Introduction. At the same time, the successful implementation of reforms aimed at liberalizing the foreign exchange market is closely linked to improving national monetary policy, strengthening the activities of commercial banks, and enhancing the effectiveness of measures to develop the banking system.
According to the Law of the Republic of Uzbekistan “On the Central Bank of the Republic of Uzbekistan,” [1] the primary goal of the Central Bank is to ensure the stability of the national currency. The concept of “national currency stability” can be interpreted in two ways: either as the stability of the exchange rate against foreign currencies or as the stability of its internal purchasing power.
The clear definition of the goals and main directions of the Central Bank’s monetary policy, as well as its commitments to achieving target inflation indicators, contributes to the formation of positive economic expectations in society. To improve monetary policy, enhance the role of its instruments, analyze and forecast banking system liquidity, and increase the efficiency of money market operations, it was planned to attract special technical missions from the International Monetary Fund, study the best practices of central banks in foreign countries, and expand mutual exchange of experiences during the period of 2018–2021. The monetary policy pursued by the Central Bank of the Republic of Uzbekistan includes a set of comprehensive measures aimed at curbing inflation, ensuring the stability of the national currency, and supporting economic growth [2]. In particular, the ongoing reforms related to transitioning to an inflation-targeting regime and improving monetary policy instruments are of significant importance.
Literature Review
In the literature on the monetary-credit system and its interconnections, many authors deeply study credit mechanisms, the interactions of financial markets, and lending processes. Some studies, such as the one conducted by Ozbekov, assess the impact of the credit system on economic growth and its efficiency. The author emphasizes that the development of the monetary-credit system contributes to economic stability and the improvement of the investment climate [3].
Finansometrics also plays a significant role. In this regard, the work of Shov analyzes precise and effective approaches to risk assessment and decision-making processes using financial econometric models [4].
Additionally, Murodov in his works, examines international experiences, highlights the specific characteristics of the monetary-credit system, and demonstrates that improving financial literacy can enhance credit efficiency [5].
These studies are of great importance for fully understanding the interconnections between the monetary-credit system and finansometrics and identifying future applications.
Analysis and Results. The monetary-credit system, as an integral part of a country's economic policy, serves economic growth and stability. Analyzing the current state of the banking system and monetary-credit policy has identified several key trends and characteristics. The transformation of Uzbekistan’s banking system is progressing rapidly, with particular attention given to the privatization of state-owned banks. Since the high share of state ownership in the banking sector negatively affects competition, shares of large banks are being sold to strategic investors within the privatization program. This process contributes to improving the quality of banking services and enhancing management efficiency.
The introduction of the inflation-targeting regime by the Central Bank of the Republic of Uzbekistan has significantly increased the effectiveness of monetary-credit policy. Monetary conditions are being regulated through active use of the key policy rate. As a result of the Central Bank’s strict monetary policy, inflation has shown a downward trend, positively impacting price stability and improving the investment climate.
In 2021–2022, an analysis of the components of net profit in the banking system was conducted [6]. According to the analysis, by the end of 2022, the banking system’s net profit amounted to 10 trillion UZS, increasing 2,6 times or by 6,1 trillion UZS compared to 2021. This growth was positively influenced by net interest income (7,6 trillion UZS) and non-interest income (9,1 trillion UZS), while operating expenses (3,9 trillion UZS), tax payments (1,1 trillion UZS), and provisions for potential losses (5,5 trillion UZS) had a negative impact.
The analysis indicates that when the efficiency of the monetary-credit system is high, overall economic development indicators also improve. Moreover, the enhancement of financial literacy and the effective application of financial econometrics contribute to sustainable growth, not only for individual enterprises but for the entire economy. As a result, the development of the monetary-credit system influences economic stability, job creation, and the well-being of the population.
Conclusion. In conclusion, further improvement of the banking system and monetary-credit policy is crucial for ensuring the stable development of Uzbekistan’s economy. Based on the analysis, the following conclusions can be drawn:
First, it is necessary to gradually reduce state participation in the banking system and create a competitive environment. As of January 1, 2024, 68 % of banking assets belong to state-owned banks, indicating a high level of state dominance in the banking sector. Accelerating the privatization and transformation of the banking system is essential to enhancing competition.
Second, the digital transformation of the banking sector must be further deepened. This requires modernizing banking infrastructure, implementing advanced banking technologies, and improving the digital competencies of bank employees. Creating a favorable environment for the development of digital banks and fintech companies is of great importance.
Third, to increase the effectiveness of monetary-credit policy, it is necessary to improve the use of monetary instruments. Key tasks include enhancing the effectiveness of the inflation-targeting regime, strengthening communication policy, and supporting the development of financial markets. The successful implementation of these measures will ensure the sustainable development of Uzbekistan’s banking system and contribute to the country’s economic growth. The monetary-credit system connects the state, financial institutions, businesses, and the population, facilitating the exchange of funds and investment attraction processes. These interconnections are essential for stimulating economic activity and ensuring stability.
References:
- Law of the Republic of Uzbekistan, On introducing amendments and additions to the Law of the Republic of Uzbekistan “On the Central Bank of the Republic of Uzbekistan”, LRU-582, 11.11.2019. https://lex.uz/en/docs/6907475
- Abdullaev, A. (2023). Banking system of Uzbekistan: development trends and prospects. Journal of Finance and Banking, 15(2), 45–58.
- Ozbekov, A. (2021). The Impact of the Monetary-Credit System on Economic Growth. Economics and Credit Journal, 4(2), 45–60.
- Shov, R. (2020). Finansometrics: Risk Assessment and Decision-Making Process. Financial Research, 5(1), 32–47.
- Murodov, D. (2022). International Experiences and the Characteristics of the Monetary-Credit System. International Finance and Economics, 3(3), 21–35.
- www.spot.uz/oz/2023/01/26/net-profit-banking-system/
