Dollar exchange rate reached its lowest point of these past years during the last weekend. The exchange rate of 1 USD was 275-280 Armenian drams. Yesterday the exchange rate was increased up to 290-300. It is clear that this process cannot be explained by any objective grounds and definitely the most appropriate explanation is that the authorities are collecting money for the upcoming elections. Anyone, who knows about the details of exchange rate variations, could earn millions during those two days. The Central Bank of Armenia is supporting that process almost directly. The CB made a decision last week, which may devaluate dollar more. Namely, on November 21 the CB made a decision, according to which the banks operating in Armenia have to increase the minimum reserve funds in foreign currency deposited with the CB from 8% to 12% (this is an amount, which banks allocate in the CB from the amounts attracted by them). It seems that this decision may prevent the process of depreciation of dollar since the banks will have to increase their reserve funds in the CB by 4%, i.e. more dollar will be extracted from the market and deposited with the CB, however in fact this decision may have different effect since the banks will tend to get rid of their resources in dollar and will sell the dollar reserves they have. Accordingly, we should be ready for a new process of dollar devaluation, which will be done with active participation of the CB.
On November 21 the Board of the Central Bank of Armenia made the following decision: “The minimum sum of the reserve monetary saved in the CB by local and international banks functioning in Armenia is defined to make from 8% to 12% staring from December 6 2007.” The mandatory reserve norms remain unchanged – 8%. What does this mean and what consequences can it have on USD rates? “5 days ago the CB made a talented and senseless decision. At first sight it looks like a positive decision,” told the A1+ the former CB chairman Bagrat Asatryan. “It seems that the amount of the circulated dollar is decreased and 12% is saved instead of the 8%. But this is the simplest interpretation. But what exactly happens in the aspect of banks? In fact the involved dollar means are becoming more expensive. If in past 8 out of 100 units was saved now 12 is saved. It means that the resource becomes expensive for the bank and if the bank is normal and we mostly have normal banks, the USD percentage rates should have shifted down or stayed away from saving USD means. Under these circumstances the USD is going to outflow from the bank system. But where can the USD flow to? To the stock market, where the dram circulates. Here the dollar meets and “embraces” the dram and in the result the dram is revalued.” Former Prime Minister Hrant Bagratyan also has a negative opinion about this decision. “At that moment the CB will start to struggle against the dollarization of the economy so that the commercial banks don’t save dollars,” says Bagratyan. “This means that we have a serious problem here. Instead of sterilizing this money the CB does the opposite. It wants to get rid of as much USD as possible. I don’t exclude that the CB might have received a certain instruction or a command but got it wrong. It means that the CB should have decreased the 8% in relation to the USD. But it did the opposite. Now instead the 8% the CB wants 12%. If you were the commerce bank you would wonder why the CB demands 8% for AMD and 12 for USD. The bank will sell its USD in drams and will give only 8%. Why should it hibernate its 12%?” asks Bagratyan, who thinks that almost 20% of the budget growth of the next year is going to be provided at the expense of the USD devaluation. There is no need to doubt that the CB will immediately announce that it has made such a decision to struggle against dollarization and that the mentioned assumptions are low-grade slandering, which shake the stability of our financial market.