By Samvel Avagyan
Nov 29 2010

According to the data published by the Central Bank of Armenia (CBA),
the de-dollarization tendencies in the Armenian economy are the main
cause of AMD revaluation.

The demand for AMD loans is growing. November 15 to 21, AMD loans
totaled 16.6 billion AMD (about U.S. $46 million), while USD loans
total 40 million. This October AMD loans showed an upward tendency.

Over 50% of the issued loans were in USD terms before.

Deposits showed a de-dollarization tendency. However, according to the
information at our disposal, USD deposits exceed AMD deposits. Banks
accept less AMD deposits than issue loans, which causes AMD "hunger"
and AMD revaluation. On the other hand, exchange offices register
additional demand for U.S. dollars. Last week, purchases totaled U.S.

$70 million, and sales U.S. $77 million. This means that citizens
and economic entities still expect AMD devaluation and they prefer
purchasing U.S. dollars.

Over the pas week the CBA has reduced the monetary base, especially
cash funds, thereby contributing to the AMD "hunger." At present, the
monetary base is about 451 billion AMD (about U.S. $1.2), with cash
funds totaling 316 billion AMD (about U.S. $880 million). This is not
the minimum level over the recent months. So it is yet early to speak
of any AMD deficit in the context of general economic situation. The
monetary base is likely to increase as holiday trade is nearing. Late
in 2009, the AMD base exceeded 500 billion AMD. Such fluctuations are
the main cause of the holiday price rise, as a surplus is formed in
the economy.

This year, the monetary base has undergone de-dollarization as well.

The share of required currency reserves in the monetary base has
sharply decreased. By November 26, the required currency reserves
had constituted about 14.5% against 31% early this year.

Thus, de-dollarization is the main cause of AMD revaluation and further
expectations of price rise. The CBA's containment policy contributes
to AMD revaluation as well.

From: A. Papazian