Currency substitution in Central Asia threatens monetary policy effectiveness and household welfare.
The article explores how using foreign currencies alongside local money affects Central Asian economies. By studying Kazakhstan, the Kyrgyz Republic, and Tajikistan, researchers found that people in these countries often hold foreign money due to unstable local currency. This can reduce government revenue but may benefit households if their domestic money loses value. To reduce this currency substitution, countries need stable prices and exchange rates, as well as a stronger financial sector.