The FINANCIAL — As Reuters reported on April 10, White House hopeful Barack Obama on Thursday linked the dollar’s steep slide to imbalances in the U.S. economy and Bush administration policies, which he said had put the country deeply in debt.
Obama, who is battling Hillary Clinton for the Democratic presidential nomination, said Americans were buying more products abroad than they were selling to overseas markets.
“Europe, U.S. at odds over approach to interest rates,” claimed ReportBusiness on April 11. As the news reads, Canada and Britain have slashed rates along with the U.S., but the European Central Bank refuses to follow suit.
Europe and the United States are deeply divided over interest rate policy as they head into critical meetings aimed at forging a common front to staunch the global credit crisis.
Central bankers in the United States, Canada and Britain have been slashing interest rates, while the European Central Bank has been steadfast in its refusal to follow suit, citing fears over inflation.
“In general the exchange rate is unpredictable over a short term period and it’s impossible to guess what’s going to happen with the USD in 2008. Although, experts have different views on the subject,” David Amaghlobeli, National Bank of Georgia (NBG) President, told The FINANCIAL.
According to Amaghlobeli, if the USD is strongly appreciated VS the EUR and other basic currencies, the latter will subsequently be appreciated in the local market as well and vice versa.
“However the exchange rate matters less for the country’s economy than the issue of inflation itself. Hence, NBG and the majority of central banks worldwide are focused at inflation reduction. In this respect, NBG is referring to various monetary instruments and remains less oriented at the stability of the exchange rate,” stated NBG President.
As of today, 60% of the deposits are dominated by foreign currencies and 40% – by the national currency GEL. By the end of 2007 the overall amount of deposits opened in GEL were 47 thousand, and in foreign currencies – 78 thousand.
“Georgia is not capable of conducting any currency control mechanism. That’s why we wouldn’t regard it reasonable to use administrational regulations. The market demand-supply dynamic will stabilize the EUR and USD usage limits,” said Amaghlobeli.
“It’s all up to the bank to be prepared for whatever happens as far as the currency rates are concerned. In Georgia we see quite drastic fluctuations of the exchange rates, which is expressed mostly in the further appreciation of the national currency GEL against the USD. ProCredit Bank Georgia runs a closed currency policy and we’re always committed to making the bank’s assets and liabilities in different currencies so that we never face losses in case the currency rates are changed,” Philipp Pott, the General Manager of ProCredit Bank Georgia, told The FINANCIAL.
According to Pott, the bank’s general policy is to avoid losses that might be caused in case of open currency position when a particular currency appreciates or depreciates.
“What we say as a general tendency is that starting from last year growth rates in customer funds in the USD have slowed down but on the other hand people have started saving in EUR and GEL. I think the fact that people open deposits in the national currency is a positive tendency, which was not always the case,” declared ProCredit Bank Georgia General Manager.
In Pott’s words, in Georgia dollarization of the local banking sector is decreasing. As the National Bank of Georgia (NBG) reported, this year the indicator has reduced 5-6% from 70%, which is a normal tendency for CIS countries.
“There’s still high dollarization in Georgia, around 60%, lots of goods and products are sold in the USD,” noted Pott.
As he later added, total customer funds, which include: savings accounts, term deposits and current accounts – showed less strong growth. There have been cases when customers closed accounts and reopened new ones in GEL or EUR whereas others still opened deposits in USD. Hence, the bank didn’t lose any funds.
“As for advice, it’s not the bank’s job to dictate to the customer which currency to open new deposits in as nobody can predict how exchange rates are going to develop. The only consultation we can deliver is according to the purpose of the intention of the particular client. If one would like to buy a car in Germany in 5 years’ time, it’s logical to save in EUR whereas if the purpose is saving for educating tuition in Georgia, the national currency is preferred and USD is more appropriate for real estate acquisition,” said Pott.
“We’re a sound international institution and don’t need to set higher rates to attract customers unlike the ones which don’t have such a significant market share,” stated ProCredit Bank Georgia General Manager.
As he noted, there are still lots of transactions denominating in USD and EUR, but the transactions are carried out according to the exchange rate by NBG on the day of the transaction.
“As for the legislation, I don’t see any necessity to make corrections as we have no currency limitations and have the possibility to carry out whatever transactions we want in any currency. One question is in which currencies are the transactions carried out and the other – which currency in the transaction is denominating,” said Pott.
‘Bank Republic is a member of an international group and possesses the very strong financial support of Societe Generale, apparently there will be no change in policies and/or products of the bank as far as the retail banking service is concerned. For us the happiness and comfort of the customers is a bigger priority,” Armen Mathevosyan, Head of BR Retail Banking, told The FINANCIAL.
According to Mathevosyan, since the beginning of 2008 the number of BR accounts has increased by 14%. During this period the customers preferred to open accounts in GEL. The volume of accounts in the national currency has increased by 32% and accounts in foreign currencies have decreased by 10%.
“I would suggest to our customers not to amend their behaviour as far as choice of currency is concerned as problems with the USD exchange rate are temporary and the U.S. continues to be the leading world economy and should be out of this slight and temporary recession quite soon. Although I would recommend diversifying savings and looking more seriously towards saving in GEL,” stated Mathevosyan.
As Mathevosyan noted BR has not experienced any major or abnormal switches from USD to EUR or to GEL. The bank has more than a hundred thousand customers and their behaviour is regular. BR does not have any precise information on the number of “switchers”.
“No legislation comes to my mind which requires any organization to do operations in any particular currency. As per Georgian legislation all domestic operations shall be contacted in GEL which is the only legitimate currency for paying for goods and services in Georgia. This law has been in force since the implementation of GEL and it will never change,” said Mathevosyan.
In Mathevosyan’s words, as far as other currencies are concerned – everything depends on the partners of Georgian companies abroad – if Georgia has more tight economic relationships with the Euro zone then EUR will be more popular – so far USD is predominant and this will not change in the foreseeable future.
Written by Kate Tabatadze
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