National Bank of Georgia exchange rate

National Bank of Georgia exchange rate

The National Bank publishes official exchange rates no later than 17:00 on the day of calculation.

The exchange rate is determined by the National Bank according to the latest transactions and exchange rates on the local and international currency markets.

The only exception is the US dollar. The exchange rate of the GEL against the US dollar is the weighted average exchange rate calculated taking into account the spot deals concluded at the National Bank's foreign exchange auction and trading system during the reporting period.

If the National Bank does not publish an official exchange rate for any currency, it is recommended that interested parties use Lari National Bank exchange rate.

Starting in 2020, trading on the Bloomberg BMatch platform is carried out by the National Bank, commercial banks, microfinance organizations and the International Investment Fund.

The information needed for the recalculation is the information systems of "Reuters" and "Bloomberg" and the central banks of the respective countries.

Floating exchange rate and the National Bank as a market participant

There is a floating exchange rate in Georgia. During this regime, the national exchange rate is formed on the basis of market demand and supply and macroeconomic factors. Currencies are bought and sold in the foreign exchange market, and whichever currency has more demand, it gets stronger. In such conditions, free capital mobility and inflation targeting are easier.

The National Bank states that "it has no influence on the exchange rate determination process". But then why does he buy dollars from the market very often lately or why does he do the following reverse interventions?

International reserves exceeded 5 billion dollars, which is a historical maximum. A certain percentage is also kept in monetary gold.

When the European Bank buys dollars from the foreign exchange market, if there is no other strengthening factor for the lari, then there is a chance that the lari will depreciate. Or the tendency of the strengthening of the GEL to reverse.

If the lari depreciates too much, the bank will sell the dollar at an auction and try to strengthen it.

In 2021, up to 500 million US dollars were sold to support the exchange rate, and in 2023, 1 billion dollars were purchased for reserves.

Accordingly, the Central Bank becomes an absolute market participant. The first paragraph of Article 68 of the Constitution of Georgia, according to which the National Bank is the bank of banks, the government's banker and fiscal agent, is most visible here.

Money emission and monetary policy

According to the legislation of Georgia, only the National Bank has the right to issue GEL banknotes intended for both circulation and collection purposes.

According to statistics, as of July 2023, the monetary aggregates in the economy of Georgia have increased to a record level. The mass of cash has increased by 16%, and broad money by 31.5%.

The amount of cash is the same as the so-called It is a mass of "narrow money". For example, a commercial bank goes to the National Bank and takes a loan from it. Say, 10 GEL. After mandatory reservation, 9 GEL remains. The National Bank will print money and lend it to the commercial. The money actually exists, it is physical and it was given as a loan.

In the future, an ordinary user will come to some commercial organization. The organization gives the received money (in addition to the mandatory reserve) to the customer in the form of a loan, and the so-called Mass of "broad money".

One of the most powerful levers in the hands of the central bank is the refinancing rate, through which it is possible to increase or decrease the money supply.

When the refinancing rate is high and the policy is strict, banks are less willing to lend "expensive" money. Logically, the National Bank does not even have to print new money. At the same time, consumers no longer bother with taking new credits and the amount is decreasing.

At the meeting of September 13, 2023, it was decided to reduce the refinancing rate by 0.25% percentage point, from 10.25% to 10%.

Decreasing inflation was named as the main reason for this. Prices for food and international shipping on international markets have become relatively cheaper. In general, the UN Bank is guided by the inflation targeting regime, and the annual target rate of inflation should not be higher than 3%. In previous years, the figure has been several times higher than 3%, and some economists believe that inflation targeting is an outdated system and its replacement is inevitable. Only the National Bank of Georgia cannot do anything in this regard, and the IMF needs to change its approach.

It often happens when inflation is not stabilized, although the growth rate of inflation has slowed down, and if the National Bank makes a hasty decision, there is a chance that it will increase again.

Since May 2023, the rate has been reduced by 1% in total. This had its negative impact on the currency market and caused certain fluctuations.

The tightening of the refinancing rate helps to strengthen the exchange rate of the GEL. Precisely, due to the "expensive money" factor, the official exchange rate of the National Bank becomes stronger during the strict policy.

Dedollarization and National Bank rate

Since 2010, especially since 2016, the Larization program has been launched in Georgia. The former president of the National Bank, Koba Gvenetadze, assessed de-dollarization as follows: "De-dollarization is an increase in the availability of GEL loans". Therefore, small loans (up to 200 thousand GEL) were issued only in national GEL. Also, the so-called Relief for those borrowers who were most affected by the devaluation of the exchange rate.

What is Larization? When 50% of deposits and loans placed in commercial banks are in GEL, this is larization. The remaining 50% is in dollars - this is dollarization.

The National Bank sees challenges in foreign currency lending and deposit attraction.

On the other hand, dedollarization is called an artificially created process and only the imposition of regulations that do not lead to positive results.

When we have a floating exchange rate regime, high dollarization is a real problem and significantly limits the exchange rate's ability to absorb shocks. At the same time, an incorrectly planned de-dollarization can affect the depreciation of the national currency and increase the taking of deposits in dollars.

Ultimately, if the macroeconomic situation and the exchange rate of the GEL will be stable, the dedollarization will be transformed from an artificial to a completely natural process, which will strengthen the exchange rate of the national currency itself.