In the past several months the world has been rocked by profound economic and social turbulence. The COVID-19 epidemic has forced many countries around the world into widespread emergency lockdowns. Economic activity plunged dramatically in February-March 2020, with rapid indicators showing strong contractions in retail, restaurant business, and passenger transport. The scale of the imminent economic fallout is not yet known, but early expert opinions suggest that the economic shock may be even more dramatic than during the 2008 global financial crisis. Under these circumstances, it seems impossible to think of any kind of economic policies except those related to the epidemic and the means of combatting its fallout. Yet, some policies, particularly those that have long-term economic consequences for the country, deserve our attention even in these turbulent times. Among them are the larization policy measures initiated by the National Bank of Georgia in June 2016.
One of the reasons for paying attention to the larization policy is that it has a direct bearing on the health of the financial system, the sustainability of the private sector, and the stability of key economic variables such as inflation, interest rates, exchange rates, and growth. In this policy note, we examine the larization policy in Georgia in the context of international experience with de-dollarization. We discuss how the larization measures have impacted the economy so far, which market distortions may have been corrected, and which may have been created inadvertently. Finally, we suggest the direction of policy actions that may be taken in the future.