Central Bank of Armenia: A Key Player in Armenia's Financial System

The Central Bank of Armenia plays a crucial role in the country's financial system, with its main office located in Yerevan.

As the country's central bank, it is responsible for maintaining the stability of the Armenian dram, the national currency.

The Central Bank of Armenia was founded in 1993, following Armenia's independence from the Soviet Union.

The bank's main goal is to ensure the stability and security of the financial system, which includes regulating and supervising banks and other financial institutions.

The Central Bank of Armenia has a rich history that dates back to 1863, when it was established as the Armenian branch of the Russian State Bank.

The bank's main goal was to provide financial services to the Armenian population, and it played a crucial role in the country's economic development during the Russian Empire era.

In 1918, the bank became the Central Bank of Armenia, and it was responsible for managing the country's currency, the Armenian dram.

The bank's independence was short-lived, as it was nationalized by the Soviet government in 1920.

In 1993, the Central Bank of Armenia was re-established as an independent institution, with the goal of promoting price stability and economic growth in the country.

The bank has since implemented various policies to achieve this goal, including setting interest rates and regulating the banking sector.

The Central Bank of Armenia plays a crucial role in maintaining financial stability. It uses various instruments to achieve this goal.

One of the key instruments is risk analysis and assessment, which involves analyzing indicators of the local and external financial system, as well as the real sector. The Central Bank also monitors financial markets and payment systems.

The Central Bank's market intelligence is another important tool, providing widespread transparency about its objectives and publicly identifying risks. This encourages financial market participants to increase their awareness of these risks and act accordingly.

The Central Bank's payment system oversight and development is essential for maintaining financial stability. It ensures that payment systems are functioning properly and efficiently.

The Central Bank also acts as a lender of last resort, providing liquidity assistance to financial institutions when needed. This helps to prevent a credit crunch and maintain financial stability.

The Central Bank's financial Stability committee plays a key role in identifying and mitigating potential risks to the financial system. It works closely with other regulatory bodies to ensure that the financial system is stable and secure.

Here are some of the key instruments used by the Central Bank to maintain financial stability:

The Central Bank of Armenia (CBA) is a legal entity empowered with state functions, primarily aiming for price stability, as stated in the Constitution of Armenia, Article 83.3 and Law on Central Bank of Armenia, Article 4.

The CBA adopts an inflation targeting strategy, which was officially adopted in January 2006, moving away from the previous framework of inflation management.

The CBA coordinates its primary goal with the Government of Armenia, as required by the Armenian Law on State Budget, and approved by the National Assembly of Armenia.

The CBA develops, approves, and implements a monetary policy program, which outlines the main directions of monetary policy and the monetary instruments used to achieve its objectives.

The CBA's Forecasting Team presents inflation forecasts for the upcoming 12-month horizon, future monetary policy directions, and necessary measures to minimize deviations from the target, which are discussed during the Board meeting.

The CBA Board decides on the level of the CBA refinancing rate (repo rate) at the beginning of each month, while determining the monetary policy directions for each quarter.

The CBA coordinates its monetary policy with the Government's fiscal policy through the "Agreement on the Principles of Cooperation between the CBA and Ministry of Finance", ensuring a framework for coordination and communication between the two policies.

The CBA supports the Government's economic and financial projects, as long as they do not contradict its objectives, and participates in proceedings of standing committees that oversee policy implementation.

The CBA conducts a foreign exchange policy aimed at enhancing the reliability and international credibility of the Armenian Dram, through effective management of currency reserves and an appropriate exchange rate regime.

The CBA operates a freely floating exchange rate regime, consistent with liberalized capital account operations and an independent monetary policy, with intervention based on monetary policy goals.

The CBA publishes the Armenian Dram's market-based average exchange rates vis-à-vis foreign currency.

The Central Bank of Armenia has a range of instruments to maintain financial stability. These instruments include risks analyses and assessment, market intelligence, payment system oversight and development, market operations and liquidity assistance, acting as lender of last resort, and a financial Stability committee.

The Central Bank conducts risk analyses and assessment to identify probable risks affecting the financial system. It monitors financial markets and oversees payment systems, analyzing indicators of local and external financial systems, as well as the real sector.

The Central Bank uses internationally known stress-testing models to assess the vulnerability of the financial system in times of probable risks materializing. Stress scenarios are simple "what if" events that allow the Central Bank to assess the costs of the financial system or individual participants.

The Central Bank implements prudential and macro prudential policies to control risks. Prudential regulation sets a regulatory framework for individual institutions to keep risks under manageable limits, while macro prudential policy uses prudential instruments to maintain the stability of the financial system as a whole.

The Central Bank draws on analysis of all factors that might directly or indirectly affect the stable functioning of the financial system. This includes analysis of financial system pillars, such as financial institutions, financial market infrastructure, and financial markets, as well as developments in the macro economy.

The Central Bank also uses indicators of financial soundness endorsed by the IMF to assess financial stability. These indicators provide a framework for evaluating the stability of the financial system.

Here is a list of the Central Bank's instruments for maintaining financial stability:

The Central Bank of Armenia plays a crucial role in maintaining financial stability in the country. Its main objective is to ensure the stability and proper functioning of the financial system, including the banking system.

The Central Bank implements this task through risk assessment and reduction, financial system regulation and supervision, payment system oversight, and acting as a lender of last resort in exceptional circumstances.

The Central Bank has a range of instruments at its disposal to maintain financial stability, including risk analyses and assessment, market intelligence, payment system oversight and development, market operations and liquidity assistance, and acting as a lender of last resort.

These instruments help the Central Bank to identify and mitigate potential risks to the financial system.

Here are some of the key instruments used by the Central Bank to maintain financial stability:

The Central Bank also uses internationally known stress-testing models to assess the vulnerability of the financial system. Stress scenarios are simple "what if" events that allow the Central Bank to assess the costs of the financial system or individual participants.

The Central Bank of Armenia has a robust legislative framework to regulate the country's currency and banking activities. The Central Bank is a legal entity, with the Republic of Armenia as its sole founder.

The Central Bank's primary objective is to ensure price stability by developing and conducting monetary policy programs. This involves creating conditions for stability, liquidity, solvency, and normal functioning of the banking sector.

The Central Bank has the authority to license and supervise the activities of credit institutions in Armenia, as stipulated in the Armenian Law on "On Credit Organizations". This law was adopted on May 29, 2002, marking a significant change in banking legislation.

The Central Bank is responsible for regulating the circulation of the Armenian currency and currency control, as outlined in the Armenian Law on "Currency Regulation and Currency Control". This law was amended in 2004 to clarify definitions and procedures for currency transactions.

The Central Bank also regulates banking activities, including registration, licensing, and supervision of banks, as specified in the Armenian Law on "On Banks and Banking". This law determines the scope of financial, investment, and subscription activities, as well as prudential economic standards.

Here are the key laws that govern the Central Bank's activities:

The Central Bank of Armenia has made significant strides in international cooperation, which has opened up new opportunities for the country's economic growth.

The Central Bank of Armenia maintains mutual cooperation with several international financial organizations, including the International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development, and Asian Development Bank.

These partnerships have allowed the CBA to implement various programs, such as the transformation system, maintenance of balance of payments, financing of private business, and institutional and rehabilitation loans.

The CBA's cooperation with international financial organizations has yielded positive results, creating new prospects for joint projects with various economic institutes and large banks worldwide.

The Central Bank of Armenia has a range of instruments to maintain financial stability, including risk analysis and assessment, market intelligence, and payment system oversight.

These instruments help identify probable risks affecting the financial system and assess the vulnerability of the system in times of probable risks materialising. The Central Bank also uses stress-testing models to evaluate the costs of financial system or individual participants.

The Central Bank's primary goal is price stability, and it achieves this through an inflation targeting strategy, which sets a forecast level of inflation as an intermediate goal and interest rates as an operational goal. The Central Bank coordinates its monetary policy with the Government of Armenia to ensure alignment with the country's economic goals.

The Central Bank's foreign exchange policy aims to enhance the reliability and international credibility of the Armenian Dram, and it achieves this through a freely floating exchange rate regime.

The Central Bank of Armenia has adopted a freely floating exchange rate regime, which is consistent with the principles of liberalized capital account operations and implementation of an independent monetary policy.

This regime allows the Armenian Dram to float freely on the foreign exchange market, without any artificial intervention from the Central Bank. The Central Bank's intervention is carried out based on the goals of the monetary policy.

The Central Bank publishes the Armenian Dram's market-based average exchange rates vis-à-vis foreign currency, providing transparency and clarity to the market.

The Central Bank's foreign exchange policy aims to enhance the reliability and international credibility of the Armenian Dram, creating a legal and economic framework for current account operations, flows of the Capital Account and foreign investments.

The Central Bank's effective management of currency reserves is crucial for implementing an independent monetary policy and maintaining a stable exchange rate regime.

The Central Bank of Armenia's recent policy decision has left local producers in a tough spot. According to economist Suren Parsyan, the Central Bank's cut in its key interest rate to 7.25% has instead posed significant risks to the national economy.

Despite the rate reduction, dram-denominated loan interest rates rose to 13.37% in August 2024, up from 12.33% a year earlier. This suggests that the policy may not be benefiting businesses and households as intended.

The Armenian Central Bank's policy is unusual, especially when compared to Russia's Central Bank, which has taken an unprecedented step by raising its rate to 21%. This is due to Russia's high inflation and a weakening ruble.

Unfortunately, local producers are bearing the burden of the Central Bank's miscalculated monetary policy, while the banking system accumulates substantial profits.

The Central Bank of Armenia has been making adjustments to monetary policy to tackle inflationary pressures. The bank has carried out nine consecutive rate cuts, but still sees inflationary pressures as low.

Armenia's inflation rate is currently at -0.5%, a relatively low figure compared to other countries in the region. The Central Bank of Armenia is closely monitoring domestic inflationary pressures, which it believes are strong.

To maintain financial stability, the Central Bank of Armenia uses a range of instruments, including risk analysis and assessment, market intelligence, and payment system oversight. These tools help the bank to identify potential risks and take steps to mitigate them.

Some of the key instruments used by the Central Bank of Armenia include:

Armenia's Central Bank has been making headlines with its recent rate cuts. The Central Bank of Armenia lowered its key interest rate to 7.25% in August 2024, but this move may not benefit businesses and households as expected.

The Central Bank's decision was made despite Russia's Central Bank raising its rate to 21%, due to high inflation and a weakening ruble. This unusual situation has raised concerns about the Armenian economy.

According to economist Suren Parsyan, the Central Bank's policy may be hurting local producers while benefiting the banking system. Parsyan points out that despite the rate cut, dram-denominated loan interest rates rose to 13.37% in August 2024.

Central Bank Governor Martin Galstyan attributes the situation to strong demand for loans, driven by Armenia's high economic growth and external demand. Galstyan notes that the country's risk-free rate is around 9.5%, making it difficult to price long-term loan products below this level.

The Central Bank has also been using various instruments to maintain financial stability, including risk analysis, market intelligence, and payment system oversight. These efforts aim to identify potential risks and prevent them from affecting the financial system.

Here are some of the key instruments used by the Central Bank to maintain financial stability:

The Central Bank also uses stress-testing models to assess the vulnerability of the financial system to potential risks. This helps the bank to identify areas that need attention and take proactive measures to maintain stability.

The Central Bank Board is the highest management body of the Central Bank, consisting of the chairman, his two deputies, and five members of the board. The Chairman is appointed by the National Assembly, at the presentation by the President, for a period of 6 years.

The Chairman of the Central Bank is the highest official of the Central Bank and is responsible for fulfilling the objectives set by law. In his absence or inability to perform duties, he is substituted by one of his deputies.

The Deputy Chairmen are appointed by the President for a period of 6 years. Members of the Central Bank Board cannot hold any other paid position in the Central Bank.

The Chairman coordinates and ensures the work of the Central Bank, represents it in the Republic and abroad, and implements other rights assigned exclusively to the Central Bank Board. Members of the Central Bank Board are appointed by the President of Armenia for a period of 5 years.

The Central Bank of Armenia's management structure is quite interesting. The Central Bank Board is the highest governing body of the Central Bank.

The Central Bank Board consists of the Chairman, his two deputies, and five members. The Chairman and Deputy Chairmen are automatically included in the Board due to their positions.

The Chairman holds the most authority, being responsible for fulfilling the objectives set by law. In the Chairman's absence or if he's unable to perform his duties, one of his deputies takes over, and if they're also unable, the eldest member of the Board steps in.

The Chairman is appointed by the National Assembly, at the President's presentation, for a six-year term, while the Deputy Chairmen are appointed by the President for the same period. The Board members are appointed by the President for five years.

The Chairman coordinates the Central Bank's work, represents it in Armenia and abroad, and carries out other exclusive rights assigned to the Board.