How do you assess the situation on the currency market and the growth of refinance loans by the National Bank? Doesn’tthis lead to the increasing pressure on the national currency? How reasonable is in the current situation to issue such a number of refinance loans?
Due to the situation in the foreign exchange market in Georgia, many estimates have been done by the international organizations such as the IMF, but an emotional background still remains high, talks typical for the Soviet mentality are often heard- the search for the guilty and the witch-hunt.
People should finally understand that currency fluctuations is a usual thing, they are often unpleasant, but are typical for the market economy, so there is no need to look for a black cat in a dark room. Otherwise, all these searches of scapegoats remind 1937.
Today the banks are announced “enemies of the people” which are allegedly speculating economic situation of the country. But in reality the situation is quite different – the figures show that in 2014 the banks bought currency in the amount of $ 6.3 bln and sold – 6.46 billion that is $ 92 million more was sold than bought. Overall, these data show that banks act as an intermediary – they are buying currency from some market players, and sell to others. This is one of the most common, ordinary banking operations.
In fact, the currency crisis involves all natural and legal persons who, for one reason or another, buy or sell currency. Commercial banks do not create demand for the currency, they only meet it. Demand is created by importers, while exporters, tourists, remittances from abroad, etc are sources of its satisfaction.
Supply and demand is formed on this basis, and not because commercial banks benefit from a particular exchange rate.
To blame banks in formation of the exchange rate is the same thing as to blame the mirror when we do not like hairstyle.
How reasonable in the current situation is to give banks refinance loans in the amount of GEL 900 million and whether it will contribute to the devaluation of the national currency?
Refinance loans is one of the instruments of the National Bank’s monetary policy to be used for short-term liquidity needs of banks. The purpose of these loans is to manage short-term interest rates on the market. The National Bank is the sole supplier of short-term liquidity.
A term of a refinance credit is 7 days, securities in GEL are accepted as collateral. On Thursdays, commercial banks are required to cover the refinance loans received in the previous week, they can take new ones, if necessary.
For example, if last week the National Bank issued GEL 600 million, and this week – GEL 700 million, this means that 600 million were spent to cover the debt and 100 million is a new refinance loan. These funds are available on the correspondent accounts of commercial banks and their amount is always dependent on expenses in a given day.
One shouldn’t mislead the society and say that these GEL 700 million will be immediately put into circulation and collapse the financial system. Banks need refinance loans to carry out usual operations – customer service, etc.
It is very difficult to answer illogical statements logically as if refinance loans should be abolished in a situation when the demand for foreign currency is high.
Where do you see a way out of the current situation?
I see a way out in an increase in import substitution, production growth, which can be produced in Georgia and can be competitive. The trade deficit, which is 53% of turnover, always carries with it the threat of pressure on the national currency.
From this perspective, we can only welcome the new government’s initiative aimed at stimulating the economy, especially the program “Produce in Georgia”, which on the one hand can promote import substitution and export growth. In addition, after the signing of an Association Agreement with the EU which opens Georgia an access to a 500 –million European market, the interest of foreign investors is growing.
All this can create the conditions for major changes, which ultimately will improve the balance of payments and reduce the pressure on the national currency.