The Armenian Dram Collapses

After years of economic growth that surprised many, the global financial crisis finally hit Armenia early last week forcing the Central Bank to devalue the local currency, the dram. As if in expectation, mobs of people were already becoming a frequent sight outside many banks in the Armenian capital, Yerevan, all frantically seeking to exchange drams into dollars. The authorities moved in swiftly to restrict such transactions.

However, on 3 March, the inevitable happened and in the space of a few hours the dram traded as high as 380-400 drams against the dollar before dropping to 360-70. Banks and exchange booths continued to limit dollar transactions and many shops shut for a few hours while owners assessed the potential damage and saw an opportunity to increase profits.

Despite stocks being purchased before the devaluation, prices on many imported goods increased when they reopened. Sugar, pasta, vegetable oil, rice, pharmaceuticals, cigarettes and petrol were particularly affected with prices increasing by 10-30 percent. Other items such as flour were marked up by over 50 percent while the price of butter jumped by 125 percent.

Two days later, the dram stabilized at around 360 drams against the dollar, but the 20 percent depreciation from its previous rate of 305 drams to the dollar caused alarm among much of a population reliant on remittances abroad and salaries paid in the local currency. As the money in their pocket lost its value, citizens stocked up on essential items.

The collapse of the dram soon became known as “Black Tuesday” as ripples of concern soon turned into waves of panic. Highlighting various deficiencies in a largely import-driven local economy, the main concern was speculative trading and other questions regarding the financial health of the nation resonated once again.

The full article is available on Osservatorio Caucaso in English and Italian.