The Central Bank (CB) of Armenia has worked out new ways for developing
the financial system, where all the “players” must act according to
that. And who is going to be the judge here? Of course the Central Bank.
Goal of the CB
Inflation is one of those 23 visions of the CB, which probably will be
realized either at the end of this year or at the beginning of next
year. We will try to explain the meaning of this project. As we know,
the main goal of the CB is to keep the prices stable, which is stated
by the law. The CB chooses a concrete range of inflation and later
regulates the money capacity in order to reach this goal. Economically
speaking. in this case “the nominal anchor” is the money aggregator.
And now this “anchor” is going to be the planned percentage of
inflation, which is predicted by the CB. The CB announces, that price
increase must be limited to a concrete range (this issue is being
discussed, but probably this range will be 3 %). The CB is responsible
for exceeding the mark, but on the other hand, it is not responsible
for any intended changes of the money capacity in the economy. This is
a more flexible leverage and will give a chance for the CB to buy and
resell foreign currency with the purpose to regulate the rapid changes
of foreign currency exchange rates. By the way, a majority of countries
choose this strategy of price regulation today.
Three in one
The three financial market segments: the banking system, insurance and
stock market, are going to adopt a joint control system. The stock
committee and the body, part of the Ministry of Finance which takes
control of insurance companies, are going to be liquidated, and the CB
will have the right to control these three fields. This vision has been
effective in a lot of countries too, including Scandinavian countries.
The main evidence which favors this project is the effectivity of the
scale. I.e. such a small country like Armenia “cannot let itself” have
three regulation bodies in the financial market. At the same time, 90 %
of the system are the banks, among which several big banks have even
made a conglomerate with the stock market and insurance companies.
Besides that, According to the president of the CB Tigran Sargsyan,
throughout the years good intellectual power was created in the Stock
committee, which will let us make joint control more effectively. Of
course, the vision does not exclude the negative possibilities. For
instance, there may be conflict of interests in the same body.
Confidence in banks
Banks are special orgonizations, because they work “with the money of
others”, and if there is no confidence in banks, the indifference of
those “others” may affect the development of the banking system.
Corporative management will provide the protection of all the
participants’ interests, including the creditors and share holders’
interests. The responsibilities of the directors’ boards and executive
directors will be clearly determined. There will be only qualified
specialists in the directors board, which does not function in Armenia
now. In most cases the head of the directors board is the owner of that
bank (of course not a specialist of that field), and a lot of banks are
even “family businesses”. Some banks (pocket banks), which are
associated with the names of special people, cannot be trusted by
people and very often are dangerous. Of course, there will be conflict
of interests in the bank in connection with this. But who is going to
be the winner here? Of course the share holders and depositors. Only
they must make correct and successive policy here.
Disciplined stock market
Today there is no common system for making currency transactions, and
no risk protection mechanisms. The CB offers to concentrate all the
participants of the currency market in one place: in a currency market,
as it is done in developed countries. In other words, the CB wants to
create “civil” currency trade. The price at this exchange is going to
be formed on the base of supply and demand, the participants will be
able to get updated information any time they want, there will be
flexible and fast mechanisms for making arrangements. As the creation
of a separate system needs much money, the CB offers to create such a
body in the scopes of the current stock market as a different body. And
the accounting bank is going to be the Central Bank, i.e. all the
participants will have corresponding accounts at the CB, through which
the money transfers will be made. The currency exchange will provide a
chance to join the international currency markets in an effective way.
According to the CB experts, who work on this project, various
researches and international experience prove its effectiveness, and
time will show what kind of influence it is going have on our financial
system development.