What is it about?
The article “Monetary Crises in Georgia” (Authors: Doctor of Economy, David Aslanishvili and Doctor of Business Administration, Kristine Omadze) is the first attempt to overview the three main monetary crises in Georgian history since its independence and to study origins of the crises and evolution. The purpose of this article is to study the three monetary crises in Georgia itself and the errors in the Monetary Policy provided by The National Bank of Georgia and Georgian Government. It is crucial for stable economic development to have corrected Monetary Policy and to avoid mistakes similar to the mentioned in this article. At the same time, the article pays attention to importance of coordination providing Monetary Policy between the National Bank of Georgia and the Ministry of Finance. In our opinion only such coordination is the best solution for crisis prevention. Our research aims to determine the relevance and regularity of Georgian Lari (GEL) exchange rate and monetary policies conducted by the National Bank of Georgia.
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Why is it important?
As a conclusion, we can state that Lari has actually lost at least one function—the accumulation of resources and it is sharply limited its exchange and measure of value functions. The main goal of monetary policy of the sovereign country is to maintain its political and economic independence. In this regard, the cornerstone of any economic policy should be to reach stable economic growth and welfare of the population that will ensure the steady and reliable integration into the world community as a successful, progress and innovation-based state. The economy and its main indicator—the monetary system—are necessary for such a solid and predictable environment, which would be a reliable basis for further progress and development. This model is called a strong asymmetry in financial society. This is a model of the financial system where information from the past and present is available. It has a transparent and reliable statistics based on the environment and the most importantly, there is an opportunity to plan the future, its expected financial strategy, course and outcome. Unfortunately, in Georgia we can observe the low level of financial and economic asymmetry, or in other words, the only one we have to study is the ability to analyze the past. The current situation in finance and economy shows non-transparent marketconditions, subjectivity and emotional rule of management in economy, absence of developed financial and capital markets (and its actual liquidation). Such conditions do not allow us to analyze the current situation, which is totally groundless deprives future forecasts and their possible reflection model. This removes the basis for any attempt to establish real stability and ensure sustainable future-oriented, long-term and stable development of the financial strategy.
Perspectives
Growing negative balance of payments was 5.5 billion US dollars in 2015 and is widening in 2016, which shows a negative pressure on Lari rate too, because there is a decrease in foreign exchange currency inflow. Such conditions create instability to exchange rate and add additional problems to the monetary policy. The only way to improve the situation is the solid and reliable economic growth, although the rate of growth was too low: in January-June 2016, just 2.8 percent of growth per year, similar to 2.5 growth rate fixed in 2015. Overall, the business environment in Georgia is not reliable one to support sustainable growth. As of February 2016, commercial banks in Georgia issued credits of 16.2 billion Gel, while in collateral portfolio banks fixed more than 300 billion Gel property [32]. Such unprecedented proportion (1 to 20) compared to developed countries and to international practice (usual proportion should be 1 to 2, or 1 to 3 in developing countries) does not support business to develop its business and activity. In such situation, the whole business in Georgia is actually in collateral of commercial banks and attracted resources are quite expensive (15 - 20 times more expensive in comparison with international practice). In our view, it is impossible to have stable and rapid economic progress and the improvement of the situation based on current conditions.
Dr David Aslanishvili
Caucasus University
Read the Original
This page is a summary of: Origins and the Reasons of Monetary Crises in Georgia (1995-2016), Modern Economy, January 2016, Scientific Research Publishing, Inc,,
DOI: 10.4236/me.2016.711119.
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