International and local factors placing renewed pressure on Albania’s currency, but experts say the changes are normal part of free-floating currency system.
TIRANA, Feb. 1 – The value of Albania’s Lek has reached new lows this week against the two foreign currencies that have the highest impact on Albania’s economy, the Euro and the U.S. Dollar.
Returning to the 100 lek level after several years, the U.S. Dollar has grown stronger due to both local and international factors, economic experts say. These factors are also playing a role as the Euro too is once again pushing on its record level of 140 leks.
Foreign currencies are growing stronger because there are fewer euros and dollars in Albania to go around. Albanian workers abroad have sent less money home, feeling the pinch of the recession in their host countries.
Foreign investments and exports that also bring in euros and dollars to Albania have also seen a decline due to the global economic crisis.
The government will soon borrow 300 million euros through its international bonds program, aiming to release at least 100 million euros into the domestic market through public investment.
That move could help stabilize the exchange rate between the EU and Albanian currencies, according to officials.
Albania’s central bank has also been under some political pressure lately to have a more flexible monetary policy in order to strengthen the local currency.
But the Bank of Albania says it has to act carefully and will not move away from the free-floating model where the currency value is determined by the market.
“The regime of a flexible exchange rate in Albania has been and remains a grantee of long-term sustainable development of the Albanian economy,” BoA Governor Ardian Fullani recently said.
Lack of faith in the Lek for big purchases is also a big factor in its depreciation, as 30 percent of transactions in Albania are done in euros, particularly for big things like real estate.
If the current strengthening trend continues for the Dollar and the Euro, as experts say it will, it would spell trouble for the Albanian economy.
One of these troubles will be higher prices, leading inflation. The strengthening of the U.S. Dollar against the Albanian currency is expected to increase prices on imported goods for which the U.S. currency is used.
Economic experts say that the changes in the foreign exchange market will be reflected in prices of raw materials, especially on fuel, and on food products like meat and cereals.
One of the reasons that led to the increase in value of the U.S. currency lately is the fact that the U.S. economy is showing signs of recovery.
On the other hand, the fall of the Euro against the Dollar could have a direct impact on prices of machinery that can be imported from European Union countries.
Observers of Albania’s economy also note that the changes in the Lek are not that different from free-floating currencies in developed countries.
The Lek has been a strong a stable currency in Albania, even in years of political turmoil that saw neighboring countries fighting hyper inflation.
