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Georgian Lari amid China and Kazakhstan Struggles

As world witnessed what has been dubbed “Black Monday” for the Chinese economy on August 24, the Georgian national currency lari experienced the sharpest depreciation in a single day since March 2015, having lost 1.3% of its value and fallen to 2.364 per U.S. dollar, according to the central bank’s official exchange rate on Tuesday,

With a dire crisis in Russia, where the ruble is traded in the 70’s range for 1 USD dollar (while the 30’s range used to be a norm for the country prior sanctions); an introduction of the free-floating currency regime in Kazakhstan where the government that exports most of its oil to China is trying to pull the country from experiencing a default, Georgian lari, the failing tale of which has been dragging since November of last year, has found itself in even trickier situation.

In a piece from August 20 titled “Who’s Next in the Currency Market’s Race to the Bottom? Bloomberg’s experts predicted that African currencies and those of the post-Soviet countries would be hit next by the shock emanating from China:

Former Soviet states that may struggle to withstand currency depreciation pressure include Armenia, Azerbaijan and Georgia, according to Timothy Ash, a credit strategist for emerging markets at Nomura Holdings Inc. in London. Most have less ammunition than Kazakhstan, which has almost $100 billion in overall reserves. 

Georgian officials refrain themselves from making connections between the Chinese situation and lari’s sharp decline:

We suppose that yesterday’s developments in the market were only a result of a mild stir and having nothing to do at all with the external events that took place yesterday. By that, I mean the collapse of China’s stock market.

Therefore we think we should be as calm as we can since nothing special happened in our market yesterday. Our macro-economic parameters remain healthy at present and can be simply improved as a result of working diligently,”the ecoomy minister of Georgia Giorgi Kvirikashvili told Agenda.ge.

Lari’s devaluation is not in any way a new development in the country. However, it seems now Georgians have sufficient evidence to see that lari’s state is not an isolated happening and is, just like any other currency, shaped by the fast developments in the immediate neighborhood of the country, such as Kazakhstan.