GEL - Georgian Lari

Overview of the Georgian Lari (GEL)

The history of the formation and development of the Georgian Lari (GEL)

• The early period before 1995

Before the Lari was introduced, Georgia used the Soviet Ruble. (SUR). However, due to economic difficulties and political crises after the country gained independence in 1991, this currency lost its value.

• The birth of the Lari in 1995

The Lari was officially introduced on October 2, 1995, replacing the Soviet Ruble. The decision to issue the Lari marked an important step in affirming Georgia's financial independence and economic stability.

The Georgian Lari (GEL) Denominations

The Lari coins currently in circulation include both banknotes and coins of various denominations:

Lari banknotes

• ₾5

• ₾10

• ₾20

• ₾50

• ₾100

• ₾200

• Denominations ₾1, ₾2 are rarely used.

Lari coins

• 1 lari

• 2 lari

• 5 tetri

• 10 tetri

• 20 tetri

• 50 tetri

Both banknotes and coins feature designs and images that are characteristic of Georgia's culture and history. 

The current exchange rate of the Georgian Lari (GEL)

The exchange rate of the Georgian Lari (GEL) against the US Dollar (USD) is approximately 1 USD = 2.7510 GEL. This exchange rate fluctuates depending on the factors affecting the value of the Georgian Lari.

The Lari is not a widely traded currency globally but plays an important role in the Caucasus region. Especially in trade transactions with neighboring countries such as Russia, Turkey, and Central Asian nations.

The exchange rate of the Georgian Lari is influenced by domestic economic factors such as inflation, the monetary policy of the National Bank of Georgia, and regional political fluctuations.

Factors affecting the value of the Georgian Lari

The Georgian Lari (GEL) is influenced by economic, political, and financial factors both domestically and globally. Here are the factors affecting the value of the Georgian Lari:

The economic situation of Georgia

• GDP growth: A strong economy helps stabilize and increase the value of the GEL. Georgia's GDP heavily relies on the tourism, agriculture, and service sectors.

• Trade balance: Georgia is heavily dependent on importing goods from other countries. Therefore, the high demand for foreign currency to import goods causes a trade deficit, leading to the depreciation of the Lari.

• Inflation index: If the domestic inflation rate increases, the value of the Lari tends to decrease because inflation will reduce the purchasing power of the local currency. The Central Bank of Georgia must regularly implement monetary measures to curb inflation and prevent the currency from depreciating too quickly.

Monetary policy of the National Bank of Georgia

• Interest rates: The Central Bank controls interest rates to regulate the market. If interest rates rise, investing in the Lari becomes more attractive to investors, thereby increasing the value of the GEL and vice versa.

• Foreign exchange reserves: When the bank has a large amount of foreign exchange reserves, it can intervene in the foreign exchange market to stabilize the currency value in a timely manner.

Political factors and foreign policy

• Political stability: Stable politics contribute to building investor confidence and maintaining the value of the Lari. On the contrary, if there is political instability or internal conflict, it will weaken the value of the GEL.

• Foreign policy: Georgia has a strategic location bordering Russia and Turkey. International relations directly affect the value of the GEL. Sanctions or regional tensions can affect trade and foreign investment.

The value of the Georgian Lari is influenced by many different factors. Therefore, inflation control policies and the bank's monetary policy play an extremely important role. Monitoring these factors helps forecast the future value of the GEL.

The future of the Georgian Lari (GEL) is intricately tied to various economic factors, including foreign direct investment (FDI), currency stability, and the broader implications of regional economic integration. The recent depreciation of the Lari, exacerbated by external shocks such as the COVID-19 pandemic, has significantly impacted the confidence of economic agents in the currency, leading to a decline in its value without any substantial macroeconomic justification for recovery. This situation necessitates a multifaceted approach to stabilize the currency and restore trust among investors and consumers.

One of the critical strategies for stabilizing the Lari involves enhancing the inflow of foreign direct investments. Research indicates that FDI can play a pivotal role in stabilizing the exchange rate of the Lari by injecting capital into the economy, which can help mitigate the effects of currency depreciation. The Georgian government has been actively pursuing policies to attract FDI, particularly from the European Union, which can further strengthen economic ties and provide a buffer against external economic shocks. The potential for increased FDI is also linked to improvements in the agricultural sector, which, if supported by effective policies, could reduce reliance on imports and enhance local production, thereby contributing to a more stable economic environment.

Moreover, the implementation of effective monetary policies by the National Bank of Georgia is crucial for the stabilization of the Lari. Since 2009, the bank has adopted an inflation-targeting regime, allowing for a floating exchange rate that responds to market conditions. However, the effectiveness of these policies is contingent upon maintaining economic stability and growth, which can be undermined by factors such as emigration and regional instability. Emigration, particularly among educated individuals, poses a challenge as it can lead to a brain drain, reducing the potential for economic development and further complicating the currency's stability.