In what feels like a last throw of the dice, Turkmenistan is forbidding the purchase of foreign currencies as it tries to ensure its own currency, the manat, does not buckle.
The measure, which citizens hoping to trade in their cash for dollars and euros only learned about at bank branches on January 12, did not come as a total surprise.
For months, restrictions have slowly tightened as authorities watched with apparent dismay as Kazakhstan’s tenge and Azerbaijan’s manat collapsed. Starting last August, citizens were limited to exchanging $1,000 each month per person. Tellers at cash exchange points plugged passport details into a computer database to ensure against repeat attempts to change money elsewhere.
The clamor for foreign cash is being fueled by the anxiety of a long-rumored devaluation. Savers with large amounts of money in manat-denominated bank accounts were badly stung at the start of 2015, when the currency was suddenly devalued overnight from 2.85 to the current official rate of 3.50 to the dollar. Prior to that, account holders were offered recurring reassurances that no devaluation was on the way.
The appeal of holding manat-denominated accounts lies in the difference of interest rates. Accounts with the national currency offer 10 percent rates of return, while dollar accounts have insignificant interest rates.
The $1,000 exchange limit remained in place until November, when it was reduced to a mix of $450 and 500 euros per month.
Foreign-based opposition websites have reported that black-market exchange rates in the cities of Mary and Balkanabat have risen to 4.20 manats per dollar — a substantial mark-up on the official 3.50 rate. The illegal trade in foreign currencies has been far more strictly policed in the capital, Ashgabat, although some city residents have told EurasiaNet.org that dollars can be bought at 3.80 manat.
The U.S. currency remains the most preferred among Turkmen citizens, so it was still possible to see long lines in banks at windows serving dollar buyers, while only a handful were waiting to get euros, currency anxieties notwithstanding.
All that changed around December 12, when Turkmenistan celebrated the much-trumpeted 20th anniversary of the declaration of neutrality.
In the days before festivities reached their peak, President Gurbanguly Berdymukhamedov gave the chairman of the central bank, Merdan Annadurdiyev, a dressing down for poor performance. Although the specific nature of the criticism was not spelled out, it was widely assumed it had to do with the persistent long lines forming outside banks.
It was at this time that a coupon system was devised in an attempt to invalidate the benefit of pointlessly standing outside the bank from morning until night. Banks branches handed out little square or rectangular slips of paper — known as talons — that granted the holder an appointment at a specific time in which to change cash. The number of talons a bank handed out depended on their ability to satisfy demand.
The downtown Ashgabat branch of Vneshekonombank — the State Bank for Foreign Economic Affairs — typically handed out around 70 of the slips daily. The coupons were handed out on a first-come, first-served basis, which required people to sign up on a list ahead of opening hours.
Invariably, pensioners and other economically vulnerable citizens stood little chance of getting their names onto the list, as doing so entailed lengthy nighttime waits in the cold, and having to get involved in scrums with other hopeful money changers. People with the best prospects were the ones that could sit in their cars and park outside the bank.
People with their own cars sometimes brought along their elderly relatives to money exchange points, so as to get as many coupons as possible and maximize the quantity of cash they could exchange for the family budget.
The system of drawing up lists of exchange-eligible individuals invariably prompted ugly scenes.
The paper holding all the names sometimes went missing, leading to all signatories losing their place. On some occasions, the list would be revised throughout the early hours of the morning. Anybody not responding to the roll-call as the list was filled out again had their names erased. When the person turned up demanding to know why their name was not present, arguments would erupt.
Citizens report that successfully securing a talon often took several attempts.
The scrapping of the talon system followed a fresh raft of criticism leveled at Annadurdiyev by the president at a cabinet meeting on January 8.
At present, nobody can change liquid cash. Financial authorities have tried to take the sting out of the lack of access to foreign currencies by assuring people that while they may not be able to get cash in hand, they can convert their savings on their accounts. The catch being that savers can only draw dollars and euros abroad, using Visa and Mastercard cards.
The explanation offered by the Central Bank on January 13 unwittingly revealed the range of people for whom the restrictions will be creating fresh problems. “People in Turkmenistan, like everywhere else, use foreign denominations during their trips abroad, or to pay for studies in foreign colleges, to buy tickets from international airlines and to make online purchases,” the bank said in a statement.
The $1,000 monthly conversion limit remains in place even for non-cash exchanges, so anybody without substantial amounts of dollar savings stacked up already could find themselves in a tight spot all the same if they need to make large transactions. Businesses are exempt from the monthly limit.
The central bank has sought to spin the situation in an optimistic light, casting the currency limitations as a reflection of Turkmenistan’s evolution toward a non-cash economy.
“Experts in the finance sector note that these measures will give a stimulus to the development of non-cash forms of transactions and strengthen the national currency, while also hindering the development of the grey sector of the economy,” the central bank said.
Experience shows, however, that the opposite effect could well occur. If anything, similar limitations on currency exchanges under the late President Saparmurat Niyazov helped the illegal cash exchange market to flourish, which in turn exacerbated the yawning 3-1 ratio between the official and unofficial manat-to-dollar exchange rate.