Unlocking the Value in the GEL REER

29 Dec, 2020
  • The aim of this note is to examine whether it is possible to borrow in a basket of currencies of Georgia’s economic partners, which could to a large extent, or even fully, hedge the FX risk for a borrower with a GEL income stream at a price lower than that of GEL. A similar basket of currencies could also work for a GEL investor with a functional currency in USD or EUR to mitigate the FX risk
  • Results of the quantitative analysis for the selected loan portfolio, which consists of EUR (70% share), RUB (15% share), and TRY (15%) is provided in the note
  • The empirical evidence and the economic reasoning presented in this note demonstrate that there is unlocked value in multicurrency borrowing/investing in the currencies of Georgia’s economic partners as basket is relatively cheaper as compared with the GEL price and at the same time at least to large extent provides FX risk hedge
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