EVOLUTION OF THE EXCHANGE RATE IN REPUBLIC OF MOLDOVA AND THE IMPACT IT HAS ON ECONOMIC AGENTS
Mihaela GAIU, Department Finance, ASEM Scientific advisor: Assoc. Prof. PhD., Stela CIOBU
The goal of this research is to analyze the way economic agents from Republic of Moldova perform their activity in the conditions of fluctuating exchange rates and what other factors related to economic activity are triggered by the changes in prices for currencies.
147 If a currency’s value is highly volatile, it creates an unfavorable environment for economic agents, investors and individuals to activate in. And the worst part of this is the fact that its evolution can not be predicted, so everybody is being exposed to a high risk, the currency risk. Currency risk is the possibility to loose or gain money because of the FX rate fluctuations. It appears when under the influence of economic, monetary and financial factors, the value of one currency against another one is changing, influencing the economy as a whole and each component of it. Not to be mistakenly perceived as a negative influence, it is important to mention that these fluctuations can have a favorable effect over the national economy, economic agents, investment firms or individuals who are interested in dealing with those two currencies. Being an outside influence to the entity, the currency risk is categorized as a market risk, as its occurrence has nothing to do with any internal factors. The Moldovan leu is very much dependent on other currencies, mainly Euro and USD. The prices in our economy being influenced by these currencies, whether in import and export transactions or in local transactions. The period 2012-2017 was chosen to be the basis for analysis of this research, as it is well- known that the value of MDL has suffered a lot of changes during these years. In the figure 1, bellow can be noticed a sharp growth of the price for euro, at the beginning of January 2015, the MDL was rated as 15,6152 per 1 USD and 18,7699 per 1 EUR, but this changed very quickly, already on 18th of February, the prices for 1 USD was 20,9933 MDL and for 1 EUR it was 24,0154. This means, a depreciation of the national currency in relation to the USD by 34,19% and by 27,94% compared to EUR. An immediate reaction of the National Bank of Moldova was the sale of a large amount of reserves of foreign currency, in order to artificially maintain the currency rate, and managed to drop the prices by 25th of February, to 17,7729 for 1 USD and 20,121 for 1 EUR, and there was already a shortage of national currency because of a surplus of foreign currency that entered the Moldovan market. Since late February 2015 and until 2017, the foreign exchange rates for the reference currencies have been generally in a decreasing trend, maintaining a somewhat stable environment.
Figure 1. Evolution of the exchange rate in the period 2015-2017. Source: Data regarding the exchange rate of MDL against EUR for the period 2012-2014. [online][quoted 18th of April 2017]. Available:
The high price for foreign currencies influences directly the economic agents, through high prices on raw materials, other types of resources, custom duties and others, it also influenced them by triggering other instruments, like inflation and interest rates. In the months that followed the currency crisis burst, the inflation rate suffered a huge increase itself, from a value under the targeted level of 5%, to a value of 13% at the end of the year 2015. The level of interest rates set by NBM also increased in the year 2015, the rate for overnight credits increased by 57% in one year and 103% as compared to the year 2013. The biggest share of credits offered by the banks, about 84% of the credit portfolio of the whole banking sector was formed by juridical persons, which means that the change in interest rates firstly influenced the economic agents. In 2015 they coped with higher price for loans, thus making them seek optimization methods. Many of them being unable to satisfy the needs for liquidity just stopped activating, causing a higher rate of unemployment, and a decrease for consumption demand. In every type of activity different entities behaved differently, even though everybody was in the conditions of a currency crisis, only entities that perform some types of activities have shown negative business results, so it could be stated that currency risk does not necessary cause loses. Conclusions: The exchange rates fluctuations always have an impact of the whole economy. It is usually perceived as a negative influence, however there are economic agents or investors who do manage to benefit from it. So, it is important for everyone to be informed, even though it is impossible to predict FX rates fluctuations, the economic agents has to be always prepared to cover the possible losses. 148
Bibliography: 1. National bank of Moldova data regarding the exchange rate of MDL against EUR for the period 2012- 2014. [online][quoted 18th of April 2017]. Available: < https://www.bnm.md/ro/content/ratele-de- schimb >. 2. National Bank of Moldova data regarding evolution of the annual rate of inflation. [online] [quoted 18th of April 2017]. Available:
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