The currency board

• The Bank of Irad issues som only in exchange for United States dollars, at the fixed rate.
• Its dollar reserves must at all times be at least equal to the som in circulation.
• It does not lend to the government and does not buy government debt.
• It cannot act as a lender of last resort beyond its excess reserves.

Because the dollar is also legal tender and is used for most contracts, savings and foreign trade, the Bank has little room for an independent monetary policy. Its main task is to keep the som at its fixed rate.

The som was put into circulation in late 1993 at 5 to the dollar, and the rate held until 2008.

After the end of the territorial administration in December 2006 depositors converted som into dollars, and the Bank met the conversions from its reserves at the fixed rate. In 2007 American correspondent banks froze or restricted part of the reserves, and in the spring of 2007 the cabinet of the Democratic Republic of Irad drew on the reserves held in Talas, in breach of the currency-board rules. By the end of 2007 the reserves covered about 60 per cent of the som in circulation.

The Bank of Irad Act 2008 reconstituted the Bank, kept the currency-board rules and set the rate at 8.40 som to the dollar from 17 March 2008, the level at which the remaining reserves again covered the som in full. The reset reduced the dollar value of som balances, wages and pensions by about 40 per cent. Dollar deposits were not affected. The Bank has held the rate at 8.40 since that day.