jUNE 2009 23
conducted by one of the authors during a fieldtrip to Uzbekistan
in September–December 2004. The data were collected through
face-to-face interviews with twenty-one senior bank officials from
various banks.
8
In order to understand the true nature of the prob-
lems, which are central to the explanation of the lack of confidence
in banks in Uzbekistan, a number of important characteristics of the
nature of banking under central planning need to be remembered.
First, as previously mentioned, under central planning, banks con-
trolled enterprises’ financial flows, monitored their performance,
and supplied all necessary information to the authorities.
Another peculiarity of the monobank system, which is of par-
ticular importance for this discussion, is the distinction between
cash money and noncash money, each of which has its own char-
acteristics and peculiarities. The term “cash money” implied cur-
rency outside the banking sector such as coins and notes, while
the term “noncash money” referred to bank deposits (Garvy, 1977;
Zwass, 1979). Cash money and noncash money were not freely
interchangeable. By law, enterprises
and organizations in their
everyday economic activities were required to use exclusively
noncash money, which was kept in their single current accounts
in banks. The scope for the use of noncash money was limited to
organized markets where enterprises exchanged goods and services
with each other in accordance with the production plans. Noncash
money was exchanged for cash money only through payroll with-
drawals, and sundry transfer payments such as pensions and social
security benefits to the household sector.
Since noncash money
was designed to follow passively the flow of goods and services
stipulated in material plans, extra noncash money balances, not
envisaged in material plans, did not have any purchasing power of
their own. That is, noncash money was not freely convertible into
goods and services. This, combined with fixed prices, implied that
excess noncash money holdings of enterprises would not have any
inflationary effect (Zwass, 1979, p. 10).
Households received money wages in cash money for their labor
contributions. Unlike enterprises and organizations,
households
could freely decide how to spend their earnings once their wages
were paid. Households could, for example, buy sundry consump-
24 PROBLEMS OF ECONOMIC TRANSITION
tion goods from retail trade and commercial organizations in the
organized sector. They could also deposit part of their earnings in
the savings bank. When cash money was hoarded or used in the
nonorganized market, it would create a potential threat to the sta-
bility of prices in nonorganized markets. To
prevent any potential
inflationary effects of the cash money supply in circulation the spe-
cial mechanism called a “cash plan” was developed. The cash plan
involved drawing up plans for the supply of cash money in circula-
tion. Enterprises, trusts, and supervisory ministries were involved in
the process of planning the cash money circuit. Enterprises would
submit applications to a relevant Gosbank branch, indicating their
cash money proceeds as well as their cash money spendings. Next
these plans would be passed to the regional offices of Gosbank,
which in turn would check whether these plans were in conformity
with material production plans. Under the rules of the cash plan,
retail trade organizations were allowed to keep in their vaults only
a minimum necessary amount of cash money needed for their
day-to-day activities. The rest of the cash money proceeds would
have to be placed in their bank accounts on a daily basis, meaning
automatic conversion of cash money into noncash money.
Interestingly, Uzbekistan has still
not completely abandoned
some of these old-style monetary management techniques. Under
the current banking regulations, banks are still obliged to control
timely payment of taxes to the state budget by the enterprises.
9
Banks must withhold any outstanding amount of tax payments
owed by the enterprises to the budget. In so doing, banks do not
need to get prior permission from the account holders. The function
of collecting data on the enterprise activities is also included in the
banking regulations.
10
Banks collect information on their clients’
financial transactions and report them to the tax authorities and all
other relevant local and central government bodies. This practice
is also evidenced by the findings of
the International Finance
Corporation’s (IFC) 2004 survey of the business environment in
Uzbekistan. According to this survey, in which 1,500 independent
entrepreneurs, micro, small, and medium businesses participated,
more than 50 percent of the questionnaire respondents said that
banks (a) disclose information on accounts of enterprises to outside
