Publication Details
Abstract
Financial stability in transition economies heavily depends on the resilience of the banking sector to macroeconomic shocks. This study aims to empirically investigate the impact of national currency stability on the liquidity of commercial banks in the Republic of Uzbekistan from 2011 to 2024. Utilizing annual time-series data, an Ordinary Least Squares (OLS) Log-Lin-Log regression model with robust standard errors was employed, supported by rigorous diagnostic testing including VIF, Breusch-Pagan, and Shapiro-Wilk tests. The findings reveal a highly significant negative relationship between exchange rate depreciation and bank liquidity. Specifically, a 1% devaluation of the national currency against the US dollar leads to an average contraction of 0.064 percentage points in the liquidity ratio (R2 = 0.815). Furthermore, empirical analysis demonstrates that the 2017 foreign exchange market liberalization acted as a severe shock, causing commercial bank liquidity reserves to plummet dramatically from 19.20% to 11.59% in a single year. The study concludes that exchange rate volatility is the dominant macroeconomic determinant of short-term financial stability, recommending enhanced macroprudential regulations and stricter currency risk hedging mechanisms to ensure uninterrupted financial intermediation.