After years of striving to climb the rankings, Uzbekistan has managed to claim the top spot in Central Asia for implementing digital currencies. However, this achievement has fallen short of delivering the expected success. While Uzbekistan has surpassed Kyrgyzstan and Kazakhstan, it did so primarily through temporary measures and artificial stimulation, casting doubt on the sustainability of these results.
According to a recent report, Uzbekistan ranks 33rd globally in digital currency adoption, a technical leap of 54 positions. Previously, the country lagged so far behind that any progress seemed significant. Until now, Uzbekistan struggled to compete with regional leaders in Web3 development, and even in 2024, its success appears to be more a result of coincidental circumstances than a well-executed strategy.
The adoption of digital assets has been slow and fraught with challenges. Tax exemptions for digital asset service providers offered a short-lived boost but also opened the door to market speculation and instability. This attracted temporary players rather than laying a foundation for long-term growth.
The regulatory framework and licensing procedures introduced by the National Agency for Perspective Projects, led by Dmitry Li, have only added confusion for consumers. These regulations were reportedly tailored to favour the South Korean group KOBEA, whose leader maintains close ties with Mr. Li.
Although 15 companies have been granted licenses, the majority are foreign operators from South Korea who extract profits abroad rather than reinvesting in Uzbekistan’s economy.
The total transaction volume barely surpassed $1 billion in 2024, which is portrayed as an achievement but is a modest figure for a nation of over 35 million people. Furthermore, the increase in digital asset holders to 500,000 (less than 2% of the population) reflects a lack of reliable investment tools rather than genuine success in digital technologies.
The economic impact of the emerging digital industry remains minimal. Despite public statements from the National Agency for Perspective Projects under President Shavkat Mirziyoyev, led by Dmitry Li, the sector contributed only $3 million to the budget in the form of licensing fees and taxes—a negligible sum for a country with such ambitions.
For most Uzbek citizens, turning to digital assets is driven more by the lack of alternatives than by their inherent benefits. Stablecoins are often used to bypass cumbersome banking systems, and low transaction fees attract users primarily because traditional payment systems remain underdeveloped.
Some see cryptocurrencies as a hedge against inflation, but poor regulation and high risks lead many to lose their savings. While regulators claim to be tightening oversight, efforts to combat crime and illegal activities in the digital asset space remain largely ineffective.
Looking at regional rankings, Central Asia’s progress in digital assets appears to hinge on temporary fixes. Uzbekistan’s leadership is not a triumph but rather a reflection of the region’s lack of strong players. Kazakhstan, with 8% of its population owning digital assets, seems more stable despite its own imperfections.
As a major and promising partner for the West in the post-Soviet space, Uzbekistan is also on Brussels’ radar. Under the Global Gateway Strategy, the EU has earmarked €76 million for Tashkent, along with substantial grants and investments in areas such as infrastructure, advanced technologies, green energy, and environmental projects.
However, former Soviet republics often play by their own rules, which international donors don’t always account for. A recent tender for Uzbekistan’s Humo payment system left experts puzzled. Most bidders withdrew their applications at the last minute, leaving only local players closely tied to each other and to the major Uzbek bank Oktobank. Both the UK-based Gemcorp Capital Management Limited (GCML) and Kazakhstan’s Kaspi Bank dropped out, reportedly due to sudden changes in requirements.
Could this be linked to the ongoing investigation into Oktobank, which the European Parliament has recently accused of aiding in circumventing anti-Russian sanctions? Reports suggest that Uzbekistan’s National Agency for Perspective Projects, under Dmitry Li, oversees Oktobank’s operations. Such dominance raises concerns about monopolization of the financial sector and the bank’s potential role in helping Russia bypass sanctions.
The European Union has repeatedly warned Central Asian countries, which maintain close political and economic ties with Russia, about the consequences of secondary sanctions. The EU has identified Uzbekistan as a high-risk jurisdiction and has ramped up efforts to prevent sanctions circumvention. Since December 2022, the EU’s special envoy has been conducting outreach in Central Asia and the Caucasus, including multiple visits to Uzbekistan, discussing cooperation and tighter enforcement of sanctions.
“We are not asking Uzbekistan to enforce the full spectrum of sanctions—that would be very challenging. But we’ve identified a small number of key products, critical to Russia’s military efforts, and we’re working to prevent their re-export from third countries like Uzbekistan,” said David O’Sullivan, the EU’s special envoy on sanctions, during his visit to Tashkent.
The post-Soviet landscape is undergoing rapid transformation, with the war in Ukraine serving as a catalyst for reconfiguring regional dynamics in Central Asia. While signing agreements and hoping for mutual loyalty, Brussels would do well to realistically assess the situation in countries historically close to Russia. This would ensure that European institutions and taxpayers alike do not feel misled.
