Monetary market in convulsions

Monetary market in convulsions

By Gurgen Gevorgian

Yerkir/arm
December 10, 2004

During the past week the numerous currency exchange units and a number
of private banks, making use of the Central Bank’s commitment
â=80=9Cnot to intervene with the monetary market,’ decided to scrape a
good bunch of money.The recent ` denouncement’ of dollar is a proof of
that.

The ups and downs of the monetary market

Just one week ago one USD was sold at 485 AMD and was bought at 492,
while the same morning these numbers were 493 and 500. Today, dollar
has gone down to 460 and 465 respectively. So what causes this
down-flight?

First, note that dollar primarily fell as the IMF contributed 14
million dollars to Armenia for economic development and poverty
reduction. But thisis just a slight factor. The real reasons for
reinforcement of drams are more serious and weighty.

This situation is caused by the international fall of dollar on one
hand and the pre-Xmas demand for dram on the other. Experts say that
at this rate dollar may fall to 400 drams or more by the end of
December, if the CentralBank chooses not to intervene. And the CB
believes that the people would prefer this deflation rather than rise
of prices. If dram continued to fall during 2004, the prices for
products would now be very high.

So it appears that strong drams keep down the prices. It only remains
for us to put up with the further reinforcement of drams, since it is
impossible to simultaneously fix dram rate and keep prices down.

However, a number of simple questions come up: where is the limit
beyond which there will be no sense in speaking about the role of
foreign currencies and it will be possible to regard dram as most
reliable currency for transactions? Why should Georgia and Russia be
able to intervene into this market, which, by the way, is a normal
tool, and Armenia cannot?