After our editions dedicated to the downfall of the USD exchange rate, readers called us and said that this not only concerned the USD, but also the Euro. Some of them said that the Central Bank of Armenia is not to blame because it partly depends on the USD-Euro exchange rates as well.
In fact, they are right to say that the exchange rates of Euro have gone down too. But people are mainly focusing on USD. I will explain this in the context of this article.
I have decided to analyze the dynamics of exchange rate changes during the recent years, taking into consideration different factors: international exchange rates, economical growth, foreign trade, etc. This time I will write about the previous two months.
According to the official information of the RA central Bank (CB), as of May 9, the USD exchange rate covered 446,91 dram, and the Euro exchange rate – 567,07 dram. I will make my calculations basing on these rates because the currencies started falling after May 9. In Picture 1 you can see the dynamics of USD and Euro exchange rate changes (in AMD) compared to the rates of May 9. You can see in this picture that Euro and USD have fallen down monotonously with a very small difference. According to the CB information, Euro went down faster than USD.
Initially journalists were wrong to ask why the USD prices were falling down: they better ask why the prices of USD and Euro were falling down. The reason for asking such a question is the fact that the level of “dollarization” of the Armenian economy is very high and people are more interested in the currency they have more and how they get their incomes or keep their savings. Anyway, Euro was left out of attention. Anyway, whereas it’s clear as to why people ask the questions, what remains a mystery is how the CB and IMF answer to those questions. It seemed that they agreed with the rules of the game and answered to journalists’ questions by bringing up the USD only. They said that the reasons are the increased capacity of exports, money transfers and fall of USD prices in the world market. The first explanation sounded like a joke because recently, the negative balance of foreign trade has increased.
Now let’s discuss the second explanation: they said that the number of money transfers had increased by almost 30%, most of which was USD and that was the reason for that process. Now please see Picture 2. The picture shows how much the prices of Euro and USD have fallen down compared to AMD since May 9 (in percentage). It shows that both USD and Euro fall down together and almost with the same rates. Furthermore, in June, Euro fell down faster than USD. How can the fall of Euro be explained if the fall of USD is explained by the increase of foreign transfers?
The same picture also shows the international exchange rate changes in the same period (In May the price of one USD cost 0.784 Euro, or one Euro cost 1.275 USD).
They also said that one of the reasons that USD prices were falling down was the fact that USD was losing its price compared to Euro. This picture shows that in that period, when the price of USD was falling down rapidly, its price didn’t fall compared to Euro by more than 2%. Later the opposite happened: USD prices went up compared to Euro. In other words, the currency exchange rate changes in the international market haven’t really had an influence on Armenia’s domestic market at all.
It is difficult to explain this process with the foreign transfers. Armenians send money to their relatives living in Armenia mostly in USD.
How does it happen that Euro falls down in price just like USD does? It will be better to answer to another question. What would happen in Armenia if the USD prices fell down compared to AMD, but the prices for Euro didn’t. It would be possible to make much money with the difference in international and domestic exchange rates. People could buy USD in Armenia and then exchange to Euro in abroad. Then they would bring that Euro back to Armenia, buy USD and repeat the same process for many times. At the same time this activity would be legal. In real market conditions that process can’t last long. By doing this people would increase the demand for USD, thus increasing its price again until reaching some certain level close to the international currency exchange rates. It didn’t happen in Armenia and the prices of Euro fell down with USD. Since they can’t explain this process by saying the same things, now they say that the reason is the fact that the Armenian economy is developing and growing fast, thus making the AMD prices higher, as a result of which other currencies lose their prices.
There are people that say, “if people don’t complain about the Euro-AMD exchange rates, they shouldn’t complain about the USD-AMD exchange rates either”.
We don’t mind, but most of them are not informed about such processes in the international currency market and make their assumptions based only on their own experience. As for this experience, they feel the difference mostly when the USD exchange rates change. As for the fact that MPs, journalists and others complain only about USD, the reason is the fact that their incomes are in USD and our economy is highly “dollarized”. Anyway, the fall of both of these currencies is bad for both domestic producers and consumers. “168 Hours” promises to keep its readers up-to-date about the Euro in the next editions.