On 5 February 2018, the Minister of Finance of Georgia, Mamuka Bakhtadze, in his interview with Bloomberg, stated: “If you take a look at our region’s[1]

currency exchange rates, you will see that GEL is one of the most stable currencies in the region.”

FactCheck

verified the accuracy of the statement.

Until autumn 2014, GEL had a marginal fluctuation in the GEL-USD exchange rate and was a stable currency with the USD to GEL exchange rate having been kept close to 1:1.70. Since November 2014, GEL started to depreciate against USD. By the end of 2014, the USD to GEL exchange rate reached 1:1.95 which was the highest

figure in the previous ten years.

In December 2016, the USD to GEL exchange rate surpassed the historic record and reached 1:2.78. According to the data of the National Bank of Georgia, by the end of January 2018, the USD to GEL exchange rate was 1:2.49 whilst the average monthly exchange rate was 1:2.54. In the last period, the GEL to USD exchange rate has shown a tendency of appreciation.

The depreciation of GEL against USD was stipulated by different reasons in different periods. FactCheck previously wrote about this topic (see link 1; link 2).

Of the reasons given for the depreciation, there was the Government of Georgia’s incorrect economic policy and the population’s expectations alongside external factors such as the political and economic instability of Georgia’s main trade partners.

In order to verify Mamuka Bakhtadze’s statement, FactCheck

analysed the exchange rates of the national currencies of Georgia’s neighbour countries (AMD, RUB, AZM and TRY) against USD and the trends of depreciation and appreciation for those currencies. The article takes the last five years as the accounting period in that GEL has experienced major fluctuations in this period.

As illustrated by Bloomberg’s system,

of Georgia’s neighbour countries, AZM has depreciated most substantially against the USD (as compared to the AZM to USD exchange rate five years ago) by 116% in the last five years. The USD to AZM exchange rate is 1:1.69 as of today. TRY has depreciated vis-à-vis USD by 109% which means that TRY 3.78 is needed to purchase USD 1. RUB has depreciated by 85% with the USD to RUB exchange rate at 1.56.5 today. GEL, which has depreciated by 49%, ranks fourth in this list. The USD to GEL exchange rate stands at 1:2.46. In the last five years, AMD has depreciated the least (17%) against the USD. Currently, the USD to AMD exchange rate is 1:480.

Graph 1:

 Regional Country Currencies Depreciation Dynamic against USD in the Last Five Years (%)

Source:  Bloomberg *

GEL to USD fluctuation is depicted by the orange line

In order to assess GEL stability, we need to analyse its fluctuation in the last five years. In turn, this fluctuation can be assessed by the intensity of GEL deviation from the average rate. In the last five years, the USD to GEL exchange rate was 1:1.63 at its lowest and 1:2.78 at its highest with the average exchange rate at 2.2. Therefore, the maximum and minimum deviation from the standard rate is 0.57 which is 26.1% of the USD to GEL average exchange rate for the last five years. The same figure is 42.65% in regard to RUB and AZM, 37.7% in regard to TRY and 10.2% in regard to AMD.

A different trend, however, is identified if the average fluctuation intensity for the last one year is measured. In this case, AMD still remains as the least fluctuating currency (1.1%) whilst TRY is the most fluctuating (7.6%) followed by GEL (6.7%). The fluctuation of the GEL exchange rate in the previous years bears obvious seasonal characteristics. Therefore, it was impossible to stabilise GEL at any specific mark. The seasonal factor gave rise to respective expectations among the population which additionally impacts the fluctuation

of the GEL exchange rate.

Table 1: 

Average Fluctuation of Georgia’s Neighbour Country Currencies to USD

Exchange Rate	Accounting Period	Minimum Mark	Maximum Mark	Average Intensity of Fluctuation
GEL	5	1.63	2.78	26.1%
	1	2.38	2.73	6.7%
AMD	5	403	495	10.2%
	1	477	488	1.1%
RUB	5	31.6	78.6	42.65%
	1	55.80	60.80	4.3%
AZM	5	0.78	1.94	42.65%
	1	1.66	1.79	3.8%
TRU	5	1.79	3.96	37.7%
	1	3.40	3.96	7.6%

Source: Bloomberg

Conclusion

In the last five years, AZM has depreciated the most substantially against USD (116%) of all the currencies of Georgia’s neighbour countries. AZM is followed by TRY with 109%, RUB with 85%, GEL with 49% and AMD with 17%.

In regard to fluctuation, GEL is the fourth most fluctuating currency (26%) in the region against USD in the last five years. The most stable is AMD with an average fluctuation figure at 17%. However, this picture will change if we take the last year as our accounting period in order to measure average fluctuation in that it better depicts the existing situation. In this case, GEL is the second most unstable currency after TRY.

In spite of the significant growth of exports, tourism and remittances (which contribute to the appreciation of the GEL exchange rate) the high seasonal fluctuation of the GEL exchange rate remains a problem. On the contrary, RUB, AZM and AMD do not have high fluctuations seasonally.

FactCheck concludes that Mamuka Bakhtadze’s statement is HALF TRUE.

[1] In this article, Georgia’s four neighbour countries are defined as Armenia, Azerbaijan, Turkey and Russia. Taking into account the deep trade relations and the frequently similar factors affecting their economies, evaluations of their currency stabilities vis-à-vis Georgia’s is important.