In economics, there is a long-standing debate on whether emerging markets should adopt a fixed exchange rate currency regime or leave their exchange rates up to markets to decide. Intuitively, the exchange rate is just another price, similar to the price of a sack of potatoes, a liter of milk, or a kilogram of honey. Except that the exchange rate is the price of 1 unit of foreign currency (say, 1 US dollar) in terms of our domestic currency.

Beginning in July 2017, if an entrepreneur offers and/or advertises property and/or service for sale in the territory of Georgia, the price of the property/service shall be expressed solely in GEL. According to the bill, failure to abide by the new law when denominating the price will lead to a warning, while a repeated offense will lead to a penalty of 1000 GEL. Each subsequent offense will be subject to a penalty of 5000 GEL.

In January, the cost of cooking one standard Imeretian khachapuri continued to increase, ranging from 3.56 GEL (Batumi and Tbilisi) to 3.92 GEL (Kutaisi), with the average cost being 3.67 GEL. The new average price is 1.9% higher than the price in January 2016. As for month-to-month development, the price of khachapuri is 1.3% higher compared to the previous month (December 2016).

“The Arab Spring was a revolution of the hungry.” As stated by The Boston Globe’s journalist Thanassis Cambanis in his 2011 article claiming that in countries where access to food was an issue, “hitting the dinner table” is not a good idea. In order to demonstrate the importance of food prices, he went even further and reminded his readers that when food price inflation in Egypt reached almost 19%, the president of the country had to resign.

Furthermore, high dollarization makes depreciation a dangerous process for the financial sector, as many people with loans or debts in US dollars are unable to pay. In addition, high and persistent dollarization constrains the effectiveness of the monetary policy, as the transmission of the monetary policy to the market interest rates and real variables are rather limited.