“During both the previous and current governments, there were constant additional interventions being done in order to stabilise GEL.”
Parliamentary Majority MP, Gigla Agulashvili, made a statement about the changing exchange rate of GEL: “During both the previous and current governments, there were constant additional interventions being done in order to stabilise GEL.”
FactChecklooked into the accuracy of the aforementioned statement.
We took interest in the tendencies of change in the Georgian national currency from 2003 to 2014 with regard to both EUR and USD.
Chart 1:
Exchange Rate of GEL (EUR and USD)
GEL was being strengthened with regard to USD from 2003 to 2007. If the value of USD 1 was GEL 2.1 in 2003, it went down to GEL 1.59 by 2007. The exchange rate started to devaluate again after 2008 and reached GEL 1.77 in 2010. It was stable from 2010 to 2012, depreciating significantly after 2013.
As for the tendencies of the exchange rate of GEL towards EUR it was at its minimum in 2005 and 2011.
In order to stabilise GEL (should it become necessary) the National Bank of Georgia resorts to certain measures such as interventions in the currency market. Currency auctions are a well-tested method for regulating the exchange rates of currencies around the world. The National Bank of a country trades in foreign currency reserves on these auctions. The National Bank of Georgia sells USD on the currency auction when there is a trend of depreciation of GEL and purchases USD when GEL is strengthened.
Table 1:
Interventions of the National Bank of Georgia in the Currency Market
|
Year |
Sold Currency by the National Bank of Georgia |
Purchased Currency by the National Bank of Georgia |
|
2009 |
116,700,000 |
5,000,000 |
|
2010 |
331,200,000 |
126,000,000 |
|
2011 |
80,000,000 |
380,000,000 |
|
2012 |
65,000,000 |
220,000,000 |
|
2013 |
240,000,000 |
575,000,000 |
|
2014 (December) |
300,000,000 |
200,000,000 |
We looked into the dynamics of trade with national currency on currency auctions by the National Bank of Georgia. It should be noted that the National Bank of Georgia has been making these interventions since 2009. The 2009 economic crisis had a negative influence upon GEL as well. The National Bank of Georgia sold a total of USD 317 million in 2009 and 2010 in order to reduce the trend of depreciation of GEL. The National Bank was increasing the foreign currency reserves in 2011, 2012 and until November 2013, purchasing a total of USD 790 million in three years. As for 2014, a total of USD 100 million was sold as of 2 December 2014.
It should be noted that the National Bank of Georgia started selling the foreign currency reserves in November 2013 and has sold a total of USD 320 million ever since. A total of USD 80 million has been sold since 25 November 2014.
The necessary amount of foreign currency reserves of any country is determined based upon the level of import. The overall value of imports in the last three months should not exceed the amount of foreign currency reserves.
Chart 2:
Foreign Currency Reserves (USD Million)
As of 2014, the amount of foreign currency reserves is 1.1 times more than the overall value of imports to Georgia in the last three months. In 2012 this number was equal to 1.3.
It is important to note that the foreign currency reserves had been increasing each year from 2003 to 2012. We have a trend of reduction in 2013 and 2014. It should be pointed out that the foreign currency reserves amounted to USD 191 million in 2003 whilst they reached USD 2,652 million in 2012, reducing to USD 2,397 million in 2014.
Conclusion
The National Bank of Georgia sold a total of USD 317 million in order to stabilise the exchange rate of GEL in 2009 and 2010. No such facts have been observed during other years of the previous government. This does not correspond to the part of the MP’s statement that there were constant interventions being done in order to stabilise GEL during the previous government.
The National Bank of Georgia has sold a total of USD 320 million in order to stabilise GEL since November 2013. It should be noted that in 2013 the foreign currency reserves reduced for the first time since 2003. The trend of reduction continued in 2014 as well.
Hence, FactCheck concludes that Gigla Agulashvili’s statement: “During both the previous and current governments, there were constant additional interventions being done in order to stabilise GEL,” is HALF TRUE.
