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Everybody against LARI: GEL Sees Historical Bottom

The GEL exchange rate keeps depreciating. Last week the Georgian national currency saw its historical minimum against USD (1USD=2.49 GEL). Unlike the previous year, when GEL was extremely depreciating, in January 2016 the devaluation paces have decelerated.

Despite encouraging statements by the government and the National Bank representatives, the GEL  is not expected to easily regain public  confidence after the 1.5-year depreciation period.

The GEL stability directly depends on the National Bank monetary policy. Moreover, the NBG and the Government should take steps to restore public trust to the GEL. To this end, they should make simple and clear statements.

In the current situation, the NBG head should be addressing our society from TV companies to persuade the population into the reliability of the GEL, but the NBG does not make even one comment on the exchange rate volatility.

Unforeseeable environment causes extreme panics in the society. For example, on January 22 the GEL rate depreciated by 0.03 GEL, because currency auctions could not be held until Monday. Unpredictable environment arose in the weekend period and the exchange rate hit even 2.51 point in the market.

Therefore, the NBG should provide maximum efforts to prevent extreme volatilities”, Merab Janiashvili, the vice president for the Association of Young Financiers and Businessmen (AYFB), noted.

The NBG President Giorgi Kadagidze delayed again to make reaction to the GEL exchange rate changes on January 22, because the NBG president appeared before the society only on January 26. It should be also noted Giorgi Kadagidze made focus on parliamentary hearings on the 2014 report and not on the 0.03-point depreciation of the GEL.

The recent depreciation of the GEL exchange rate largely depends on negative expectations that arose after the developments in the neighboring countries, Kadagidze noted.

Amid the 2.4 exchange rate the imports have declined to such an extent that the currency inflows and outflows are balanced. Money mass is another factor.

We have maximally limited money mass and the money mass growth has fallen to zero, in practice. Consequently, monetary aggregates cannot provoke the GEL exchange rate depreciation”, Giorgi Kadagidze noted.

It is worth noting that the statistics on the NBG website differs from the NBG President’s statement. The assertions by Kadagidze as if the NBG had practically minimized the money mass growth in the currency market to prevent the GEL exchange rate depreciation, does not reflect the truth.

In December 2015 the NBG increased the GEL volume in turnover by more than 100 million GEL and this mass has supposedly got into the currency market and affected the GEL exchange rate.

It is difficult to regain the public trust to the GEL, while the society sees the NBG President and other members make incompetent statements and in some cases even swindle the population. Similar statements bring opposite results for the national currency stability and damage it. Moreover, Zurab Tkemeladze, the head of the parliamentary committee of sectoral economy and economic policy was exposed in ignorance of elementary economic terms:

“We should not confuse deflation, when the GEL depreciates against USD, with the inflation, when the GEL depreciates against commodity. The GEL has depreciated against goods within 6% range”, Tkemaladze noted.

Economic expert Temur Basilia casts doubt on the competence of the Georgian MP. Basilia has published his FB considerations about the latest statements by MP Zurab Tkemaladze:

“I believe the officials on the key economic positions must have elementary knowledge of economics and know basic economic terms. If this principle is violated because of certain reasons, it is better that these persons make statement on the issues that they know and not mention hearsay economic terms.

We should not confuse elementary economic terms:  deflation does not mean the national currency devaluation against USD; in reality the deflation is opposite process of the inflation, when prices of goods and services decline, the inflation indicator falls below zero”, Basilia says in his statement.

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The GEL exchange rate is still unstable. State officials and the NBG representatives compete with each in shifting responsibility to external factors and in making incompetent statements around the GEL. Similar approaches cause logical distrust in the society and this factor devaluates the volatile national currency seeing historical bottom.

The position of influential bodies is appreciated in the developed countries. For example, the words by Alan Grispens, the head of the US Federal Reserve System was creditworthy all over the world. This is a mitigating factor, but the NBG President is a different case. Statements by the NBG President and the government should be identical.

Our society loses trust to them as they make controversial statements because of political confrontation. And the time has come, when the NBG President, parliament, finance and economy ministers should show valuable position to calm down the currency market and regain public trust to the national currency.