AGIOTAGE IN FOREIGN CURRENCY MARKET OF ARMENIA ON NOVEMBER 23-25, 2007 WAS CAUSED BY SPECULATIVE BEHAVIOR OF SOME BANKS AND EXCHANGE OFFICES AND LARGE-SCALE CASH TRANSACTIONS OF SOME BUSINESSMEN

Noyan Tapan
March 10, 2008

YEREVAN, MARCH 10, NOYAN TAPAN. There was an agiotage decline in
exchange rates in the Armenian foreign currency market on November
23-25, 2007, and the Central Bank of Armenia (CBA) announced that the
results of its checks would be made public after the elections. NT
was informed by the CBA press service that what happened at that time
was the result of the speculative behavior of some banks and exchange
offices operating in the market, as well as of several businessmen’s
large-scale cash transactions with foreign currency.

Out of the banks operating in the market in the indicated period,
Prometey Bank LLC was the one to establish the lowest exchange
rate, lowering it to 280 drams. By buying foreign currency at
a low exchnage rate, the indicated bank’s branch in Tigran the
Great Avenue contributed to the formation of queues of citizens
in Ardshinvestbank CJSC (located about 100 meters away on the
same avenue). Ardshininvestbank in its turn did not refrain from
making incomes through buying U.S. dollars at a low exchange
rate, estabslishing the exchange rate at 291 drams against one
dollar. Another bank located a little away – HSBC Bank Armenia CJSC
fixed the exchange rate at 300 drams against one dollar, which resulted
in longer queues at this bank.

In connection with this fact, the CBA took a numer of measures,
including checks in Prometey Bank LLC, paying attention to all the
functions and processes related to the purchase and sale of foreign
currency. The checks revealed violations of the acts regulating
the sector, as a result of which punitive measures were taken with
respect to the bank, including suspension of the operation of one of
its branches, which was actively engaged in the purchase and sale of
foreign currency. The bank was also instructed to tighten control in
the other branches. It was decided to suspend the operation of the
other branches of the bank as well if the bank fails to carry out
these instructions within 3 months or carries out these instructions
improperly. The bank was also instructed to revise its activity and to
present a new program, according to which the bank and its branches
should not conduct the policy of making foreign currency exchange as
one of the main activities of the bank, which will probably result
in a decline of the share of incomes from foreign currency exchange
in the overall incomes of the bank. (The decision on the punitive
measure with respect to Prometey Bank is available at ).

Cash operations with U.S. dollars, which were done by natural persons
with each other and some banks (Armeconombank OJSC, Ararat Bank OJSC),
were registered as well. Some of these natural persons are former
employees of exchange offices. It is noteworthy that deals of these
groups were conducted every day during the indicated period. The CBA
transferred the summary information on these persons to law enforcement
bodies for further examination.

Cases of cashing large amounts of dollars were registered in the
banking system on November 19-23, 2007: the total amount made 10
million USD, and it is impossible to trace the further "fate" of 3
million dollars of this sum by using the information collected by
the CBA.

Big operations on deposit and withdrawal of cash in dollars were
done by some organizations engaged in entrepreneurial activity –
customers of Unibank CJSC and HSBC CJSC. At the same time, big
operations on deposit and withdrawal of foreign currency by natural
persons – customers of the same banks were registered. Based on the
results of the CBA’s analysis, there is much probability that these
operations service the shadow turnover of some organizations engaged
in entrepreneurial activity. This information was sent to the State
Tax Service.

In the indicated period, the lowest exchange rates were established
by the following currency exchange points: Armenia Hotel Complex
(purchase rate 274 drams), Keramika LLC (275 drams), PSR LLC (Ani
Hotel) – (275 drams).

According the CBA, these companies have always displayed such behavior,
they establish the lowest exchange rates in the market.

As for other exchange points, Valetta LLC was the one to fix the
lowest rate of 276 drams. Numerous violations were registered
during CBA checks in Valetta and several other currency exchange
points. Fines from 50 thousand to 750 thousand drams were imposed on
economic entities for these violations. The proceedings on cancelling
the foreign currency purchase and sale licences of 7 exchange points
are underway.