BAKU, Azerbaijan, Dec.8
By Tamilla Mammadova – Trend:
For small countries like Georgia, the floating exchange rate is the most optimal that allows to absorb external shocks and protect the economy from crisis, said President of the National Bank of Georgia Koba Gvenetadze, Trend reports via Georgian media.
“If the lari doesn’t act as the mitigation automatic stabilizer to mitigate shocks, it will only boost the economic recession that is job losses, the bankruptcy of companies. This will be much worse than the negative effect caused by the lari’s devaluation. The national currency is currently affected by the tourism sector suspension and the devaluation of the partner countries' currencies," he said.
According to Gvenetadze, the deterioration of the economic climate in the partner countries has reduced the demand for products exported from Georgia.
"The exchange rate is more impaired that doesn’t correspond to the real trend. Uncertainty is very high, in the medium and long term the fundamental factors determine the exchange rate and it will start strengthening, while in the short term it is affected by expectations that lead to its collapse,"
As Gvenetadze noted, the current depreciation of the lari is short-term and is generated by negative expectations.
"It is often said that the National Bank carries out foreign exchange interventions, but the lari exchange rate does not strengthen. But in fact, to maintain the exchange rate is not within the power of the central bank, we sell currency not to fix the lari rate but to satisfy the market demand for foreign currency. We must cover the deficit that arises from time to time. We were very often reproached for buying foreign currency and increasing reserves, but it was done to use the currency in a critical situation and we are in a situation today in which we are witnessing such processes. Currency interventions may reduce exchange rate volatility, but not completely avoid it," he said.
According to him, too many different factors affect the national currency fluctuations such as the pre-election period which traditionally has a negative impact on the currency rate. In a period when devaluation is generated by negative expectations, interventions are useless- all the currency will be bought up but the rush demand will not decline.
"A floating exchange rate has its drawbacks, such as a high level of dollarization, but its benefits greatly outweigh disadvantages. Dollarization is a serious problem that must be fought by adopting decisions aimed at reducing its level. It is believed that the only way to reduce dollarization is to stabilize the national currency, but in fact, we see that it requires macroeconomic stability and low inflation,” the head of the National Bank says.
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