The NBG Will Use A New Instrument - FX Options - To Replenish The International Reserves

The NBG Will Use A New Instrument - FX Options - To Replenish The International Reserves

31 January, 2019
From 2019, the National Bank of Georgia along with FX auctions will use the new instrument - FX options for filling the international reserves. On the one hand, this instrument will increase the clarity about the expected future FX purchases from the national bank, and on the other hand, it will ensure that the impact of reserve accumulation on the exchange rate will be minimal. 

According to the current plan, the National Bank of Georgia will monthly sell call options with the right to purchase 50 million Lari from NBG on an auction basis. The option allows the owner to acquire gel (against for USD or EUR) within the next month, on a day when the official rate of Lari is stronger than the average exchange rate of the previous 20 working days. This restriction ensures that the international reserves are filled automatically only when the lari exchange rate has a tendency to strengthen. If the official exchange rate is not stronger than the previous 20 days, the owner will not be able to execute the option.

The strike price of the auction is the official exchange rate on the day when an option is exercised, i.e. average exchange rate of the previous day. NBG will monitor developments on the market and taking into account the volume of FX liquidity may increase or decrease volume of FX option auction in a particular month of the year.

The data on the actual FX purchase transactions will be available in the statistics section of the NBG we site on a monthly basis.

Accumulation of international reserves is important for country’s macro-financial stability. International experience, as well as empirical studies demonstrated that the adequate level of reserves reduced country’s riskiness and the probability of a crisis. This, in turn, enhances the trust of international investors. Maintaining reserves at an adequate level is especially important for countries with high dollarization and small open economies, like Georgia.