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AMD Revaluation Thanks To De-Dollarization

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  • AMD Revaluation Thanks To De-Dollarization

    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