The demand for U.S. dollars has exceeded supply this week.

The Central Bank of Armenia (CBA) reports that banks have purchased U.S. 73.5m and sold U.S. $75.3m in the currency market this week. The demand for U.S. dollars turns out to exceed that for Armenian drams (AMD), but the AMD is revaluating. This has been the largest volume of U.S. dollar sales over the last month.

The period under review saw further depreciation of the U.S. dollar, which means that the CBA may have failed to register part of exchange offices’ turnover.

U.S. $15.4m transactions have bee effected on NASDAQ OMX Armenia – five times as less as in the interbank market. However, it is exchange transactions that are the major factor influencing the exchange rates. Armenia’s financial market still retains features typical of shadow economies, with most of financial transactions effected with prepayments.

With banks’ demand for foreign exchange intended for issuing loans unstable, small amounts of foreign exchange remain unsold, which imitates dram revaluation. That is, the exchange rate formed by exchange transactions is speculative and does not reflect the actual trends in the financial market.

De-dollarization of Armenia’s credit market, which started in mid-July and was characterized by a theoretically large share of AMD credits, may have been of some help to the Armenian dram.   

Moreover, the credit market was rather active the last week of July. July 26 to Aug 1, banks issues 19.8bn AMD (U.S. $54m) credits in AMD terms, and U.S. $41.7m credits in USD terms.