Dram Going Down the Drain.

The Armenian currency lost its value against the Dollar by 20+% today. During the past 1 month the Central Bank had been propping it up by auctioning its strategic reserves (that consisted of Dollars). Looks like they have either run out of money or have realized the futility of fighting the market.

The Central Bank has been making all the wrong decisions since at least 2003. They sold off the gold reserves just as the prices of gold started going up and Dollar losing its value. They encouraged the strengthening of the Dram against the Dollar thus killing the exports. Then they squandered these same Dollars trying to keep Dram strong.

The underlying motive, I suspect, was to keep inflation low and show rising government budget in Dollars while the transactions were in Dram (you can thus show a large budget in Dollars while in reality it remains the same in Dram - just another 'smart' trick they use to paint pretty pictures).

So, the Armenian people who had started to trust Dram will now be screwed. Hopefully, not a lot of wealth will be lost. And hopefully this will affect the volume of imports and help jump start local production for export - from the tourism industry to actual product exports.

In the mean while, the CNN claims that the market is rallying while the Dow Jones Industrial Average (a market indicator for the top 30 publicly traded companies) is down by 0.2%. I guess any drop that is less than a percent is now considered to be a rally.

I am sticking to cash for now. In Dollars and not Drams.