Why Armenia adopts floating exchange rate policy?

Yesterday RA PM Tigran Sargsyan commented on adopting a floating exchange rate policy, the situation in foreign exchange and consumer markets as well as on further steps to be taken by RA Government on a TV interview.

«As you already know, yesterday Central Bank of Armenia decided on returning to floating exchange rate policy. For the recent months CBA has many times announced our country has not declined floating rate, just giving a temporary preference to the financial stability,» Armenian PM told journalists.

«Why did the CBA prefer exchange rate stability to price stability? Due to exchange rate stability, we are able to ensure the stability of the financial system and, generally, our economy was preparing to pass on to floating rate. What does all this mean?

Fore some period dollar depreciation was observed in Armenian market, anyway, under financial-economic crisis our economy faced a transitional period which required national currency depreciation. Our economy is a living organism and it must be given opportunity to prepare for a transitional stage and this has been announced by the CBA.

What does it mean «to prepare for a transitional stage?». First of all, it means that trade banks reinforced their potentials. Second, trade banks managed to obtain 250 million dollars, liquid dollars, to ensure the stability of their banks. Third, at this stage trade banks have 700 million dollars cash to provide services to their customers and to the economy.

That is to say, trade banks are well-prepared to provide service to the whole economic system.

However, here a second problem exists: wouldn't it be better to make the transition step by step, through little-by-little depreciation of national currency.

This very issue is a grave concern to everyone and this very issue has been thoroughly observed by the specialists of RA Government, CBA, International monetary fund and the WB.

If we see the Ukrainian and Russian experience, we can see they had to make large-scale investments in foreign exchange markets, they didn't manage to have a step-by-step transition. Eventually, Russia had to announce on the floating rate of ruble to ensure financial stability in markets.

Having discussed this with different specialists, we decided on the floating rate of 360-380 AMD per 1 USD. This makes the rate to be predictable both for trade banks and the market, both for our exportes and importers,» PM concluded.