There are many variables that affect exchange rates, and the majority of these variables are extremely complex, dynamic, and linked, making it challenging to forecast changes in currency values.
Georgia is a tiny nation with a little economy. Georgia’s national currency, the Georgian Lari (GEL), is subject to significant fluctuations in value, even from minor worldwide events. The Georgian economy has faced numerous possibilities and problems in the last few years. The economics of other nations, including Georgia, have also been impacted by the COVID-19 pandemic. Also, Georgians are greatly impacted by Russia’s current war in Ukraine.
In Georgia, the US dollar is the second most frequently used currency. Even if the government made an effort to dedollarize the economy of the nation, the majority of people still pay in USD for cars and homes.
A variety of aspects need to be considered when projecting the value of the USD/GEL currency pair in 2024, including the forthcoming elections in Georgia and the USA, the trade balance, the GDP growth rate, the growing number of Russian immigration, monetary policies, and more.
Geopolitical and Political Aspects Affecting USD/GEL
Currency valuation can be significantly influenced by geopolitical and political considerations. Let’s examine the recent and forthcoming occurrences.
Georgian elections
Georgia is anticipated to hold its parliamentary elections by the end of 2024. Remember that Georgia is a parliamentary republic, meaning that the forthcoming elections will be a significant political occasion for the nation. Additionally, there will be numerous campaigns, big-budget purchases, and promises made throughout 2024.
The administration will probably spend more money in order to gain the support of the Georgian people before the elections, even though it is well recognized that higher expenditure might lead to inflation. The strength of the Georgian Lari is predicted to suffer in 2024 as a result of the impending elections.
US elections
The United States will hold presidential elections in 2024. The national and international policies may alter as a result of elections, which could affect the US dollar’s value. Important economic variables including trade, monetary and fiscal policy, and the US position on ongoing military engagements are all impacted by the elections. Investor sentiment can be impacted by election outcomes and campaign management. The US Dollar may appreciate and investor confidence may rise if the election process and outcomes are seen as favorable for the US economy, and vice versa. It’s hard to predict how elections will affect the USD at this stage.
Opportunities to strengthen Georgia’s economic relations with the EU
Georgia strengthens its connections with the EU. This approach has been aided by Russia’s war in Ukraine, as many European politicians who had previously opposed EU expansion have now modified their tone. Among the other EU members, Germany is among the most prominent instances. Germany, the fourth-biggest economy in the world after the United States, China, and Japan, has successfully reduced its reliance on Russian energy and significantly altered its foreign policy.
Georgia has been attempting to join the EU for a long time, but there are several obstacles in the road. First, there are security worries; second, the Georgian economy is poor. Twenty percent of Georgian territory is under Russian occupation, and there are constant tensions along the borders with the separatist regions.
Should Georgia become a candidate for the EU, this would be good news for the country’s economy and raise the value of the GEL. As a candidate for the EU, Georgia will attract more investors interested in producing goods and services there. As previously noted, Georgia has a relatively low population, and the country’s lower human resource expenditures may be a determining factor for many foreign businesses looking to serve EU markets to relocate their production there. Furthermore, Georgian farmers, organizations, and enterprises will benefit from increased subsidies and funding from the EU as a result of their candidate status.
Ukraine’s military confrontation
Georgia is already feeling the effects of Russia’s war in Ukraine. Aged Russian military personnel who escape their nation to avoid being recruited wind up in nations like Uzbekistan, Georgia, Armenia, Kyrgyzstan, and so on.
The Georgian Lari has undoubtedly benefited from the migration wave of Russians. Investor confidence in the Georgian economy strengthened, the Lari became more stable, and the central bank of Georgia greatly expanded its foreign currency reserves. Particularly, the real estate sector saw one of the largest increases. Real estate and building material prices have soared. It should be noted, too, that increases in real estate prices do not come without consequences. The majority of these victims are Georgians who must rent their homes since they do not own them and are now subject to higher costs.
The Georgian Lari is probably going to continue to gain from the Russian exodus from their country if it lasts until 2024. Georgia shares a land border with Russia, and Russians can visit the nation without a visa. Although it is true that Georgian costs have increased recently, Georgia remains a favorite destination for Russian migrants due to its ease of access.
Financial Strategy
The National Bank of Georgia (NBG), the nation’s central bank, sets the monetary policy of Georgia. Although the National Bank of Georgia (NBG) is an autonomous organization in theory, the circumstances surrounding the Otar Partkhaladze case have caused concerns about how this independence is being put into practice. We shall examine these events’ ramifications and how they affect the NBG’s perceived autonomy in more detail in this piece.
Any central bank’s primary objective is to keep inflation under control. Since governments began utilizing fiat money and abandoned the gold standard, inflation has been a naturally recurring occurrence. In general, central banks strive for inflation of two to four percent, and maintaining stable interest rates is crucial. Stability is essential because in turbulent times, businesses struggle, calculations become challenging, long-term planning becomes unfeasible, and fewer goods and services are produced. The best course of action to combat inflation is to support economic growth. Robust economies have the capacity to sustain growth in the face of global and international obstacles. Interest rates are yet another widely used yet detrimental economic instrument by central banks.
High interest rates hurt the economy because they make it more expensive for people and companies to borrow money, grow their operations, and buy goods. When demand declines due to a lack of expenditure, businesses close their doors or lay off employees. In Georgia, interest rates range from 8% to 12%. In 2023, the rates were approximately 11%.
By the end of 2023, interest rates in the US will have reached a record high of 5.5% for the US economy. For a very long time, the US and Europe have enjoyed easy access to low-cost capital, which has bolstered national currencies and allowed their economies to expand. But given the problems and conflicts around the world, it is anticipated that the high interest rate era will last.
Trade and Economic Connections
Georgia’s trade deficit is expected to exceed $7.58 billion USD in 2023, according to preliminary data from the National Statistics Office of Georgia (GeoStat). The following graphic illustrates how the trade deficit has been rising, culminating in a record figure of 7.96 billion for 2022. Georgia is a consumer nation, and for the upcoming 2024 fiscal year, the deficit is probably going to stay between 7.5 and 8.5 billion. It should be noted that Georgia can become a producer and improve its trade balance if it follows the path to EU membership. The massive trade imbalance will continue to hurt the Georgian Lari’s value through 2024.
trade balance details
Exchanges between other nations and Georgia
The amount of money transfers from overseas in October 2023 was 283 USD, which is 219 million dollars (-43.6%) less than in October 2022, according to the National Bank of Georgia.
The graph shows that there was a significant spike in transactions in 2022 and that in 2023 the number of transactions steadied. Whatever the reason behind the decline in transactions, if this pattern persists until 2024, it will have a detrimental effect on the Georgian currency.
info about international money transfers to geo
Methodological Evaluation
Let’s now examine some charts. Remember that evaluating the charts is just one aspect of the study; in order to make a final prediction, the fundamentals must also be taken into account. The markets are influenced by fundamental elements like political and economic developments, but they also follow technical guidelines. In order to ascertain what can cause a price to change and how strongly it can move, both are crucial components of the investigation.
USD/GEL
For the past 2023, the Georgian Lari’s value in relation to the US Dollar has been below 2.71. Even so, the pair value has decreased to about 2.47. Technical analysis indicates that there is a greater likelihood of the price staying in that area. Furthermore, it should be mentioned that the Georgian Lari has a psychological level of 3.00. The Georgian National Bank typically engages in aggressive USD sales when the price approaches that level in order to maintain GEL below that psychological barrier.
USDGEL graph
U.S. The Dollar Index (DXY)
Worldwide use of the US dollar is possible. Additionally, the strength or weakness of other currencies affects its value. The US Dollar benchmark (DXY) is the best benchmark for gauging the strength of the USD.
The US Dollar index is derived from the US Dollar exchange rate’s weighted geometric mean against a basket of other major currencies, where each currency has a specific weight:
EUR – 57.6%
JPY: 13.6%
GBP = 11.9%
CAD is 9.1%.
SEK: 4.2%
CHF – 3.6%
When the US Dollar’s value climbs relative to the other major currencies listed above, the DXY index rises; conversely, when the USD depreciates relative to these currencies, the index falls.
The DXY chart for September 2020 to the end of 2023 is displayed here. In 2023, the index value has fluctuated between 98.7 and 109. The price appears to be in range, even if the chart indicates a slight rise. Unless there are significant changes in the political and economic landscape, it is quite probable that the pink trendline will be broken in 2024 and the price will stay in range.
USD index figure
Hazard Contributors
The value of GEL and USD might be negatively impacted by numerous concerns. Since Georgia is a small nation, both domestic and international events can readily affect its currency. Even though the USD is a global currency, domestic issues lessen its value.
Alternative currencies like the Chinese Yuan and the BRICS currency have been identified as one of the risk factors for the US dollar. The failed goal of the BRICS (Brazil, Russia, India, China, and South Africa) currency, which sought to unseat the US dollar as the world’s reserve currency, is probably not going to change by 2024. Since there are no reliable organizations that can be relied upon to print money for the rest of the world, it is impossible for these nations to succeed in challenging the USD’s hegemony. Furthermore, the two largest economies in the world—the United States and Europe—are not included in their objectives.
The United States’ mounting debt is a greater issue for the US dollar. As of 2023, the debt has surpassed 33 trillion dollars and is expected to continue rising. The government’s decision to take out further loans in order to pay down the proportion of the debt exacerbates the situation.
Case of Partskhaladze
For several reasons, the Otar Partskaladze case is highly intriguing. It demonstrates two things: first, that the National Bank of Georgia (NBG) is not entirely independent of the government, despite the fact that the constitution states that the central bank is an independent body; and second, that the ruling party is prepared to jeopardize the nation’s financial stability in order to shield a few powerful figures.
The US State Department released a list of sanctions on September 14, 2023, which included Otar Partskhaladze, the former prosecutor general of Georgia. The State Department claims that Partskhaladze was assisted in obtaining Russian citizenship by the Federal Security Service (FSB) of Russia, which then utilized him to influence Georgian politics and society to Russia’s advantage. The restrictions were aimed at Mr. Partskhaladze specifically, as well as his assets and companies.
In response to the US sanctions on Otar Fartskkhaladze, the former top prosecutor, a few Georgian commercial banks have said that they will comply with international sanctions laws. However, the Georgia Central Bank has released them from this duty. The banks were urged by the central bank to refrain from placing penalties on any Georgian national.
As verified by Natia Turnava, the President of the Georgian Central Bank, all three of the National Bank’s vice presidents tendered their resignations. In order to stabilize the Georgian Lari, the central bank had to sell about 100 million US dollars from its reserves. But the economic damage caused by this specific case to Georgia is greater than quantifiable. The National Bank of Georgia was perceived as a government-controlled enterprise rather than an independent corporation for the first time in a few years.
By the end of 2023, the Partskhaladze scandal and its effects on the Georgian Lari’s value relative to other currencies will have passed, but what would happen if a similar incident occurred again and the central bank was unable to demonstrate its independence? For GEL in 2024, the National Bank of Georgia’s strong ties to the ruling party will continue to be a risk issue.
Concluding remarks
It is difficult to forecast the USD/GEL exchange rate for 2024 because there are many variables to consider. We are limited to speculating. The value of the Georgian Lari is positively impacted by the migration of Russians. Furthermore, it appears that tourism has returned to pre-pandemic levels. The central bank of Georgia has raised its foreign exchange reserves, and the nation is moving toward candidacy for the European Union. On the other hand, there are also detrimental effects on the economy. Given that 2024 is Georgia’s election year, the trade balance is forecast to be negative by about $7.58 billion USD, the central bank’s credibility has been harmed by the Partskaladze event, and foreign transfers have fallen relative to 2022, government spending is expected to grow.
However, USD faces unique difficulties. The US must tackle financial imbalances, hold elections, and provide aid to its friends in Israel and the Ukraine. Considering each of these variables, we can conclude that the USD/GEL exchange rate will continue to fluctuate and that it will trade between 2.4 and 3.
