Will the Euro replace the GEL?

Some time ago it became known through the Financial Times that the IMF has recommended that Central and Eastern European countries switch from their local currencies to the Euro. Former Rose Revolution economic reform mastermind Kakha Bendukidze has hailed this decision and recommended that the Georgian Government also abolish the GEL and introduce the Euro.

Bendukidze states that this step would be beneficial for Georgia. It will attract more investors by making it easier for them to avoid money transfer and conversion difficulties. It will also decrease inflation, which will become similar to that of Eurozone countries. Interest rates in banks will also decrease, he says. In support of his ideas Bendukidze cites the example of Montenegro, which since introducing the Euro has seen economic growth increase 2,5 times and inflation decline 3 times.

Some economic analysts have challenged Bendukidze’s assertions. David Aslanishvili suggests that the country is not ready for such a change. He states that a switchover is possible when the country’s economy is growing and the trade imbalance is decreasing. Abandoning the local currency also means giving up an independent financial policy. Prices will also rise to European levels and unemployment will rise further, Aslanishvili says. He also adds that not even all the EU states have adopted the Euro, and Montenegro’s success is based mostly on the very advanced infrastructure of the Montenegrin tourism business and the consequent inflow of tourist Euros into the country.