The Moldovan leu (MDL) is one of the most stable currencies in the region – the NBM.
Daniel Savin, Director of the Financial Markets Department at the National Bank of Moldova (NBM) stated this while speaking within the 9th edition of the podcast "Give Sense to Money". He said that, if compared to other currencies from the region, the MDL is a currency that developed naturally and without big fluctuations. He cited the example of the Turkish lira, which has recently depreciated a lot. "We had the power to act in such a way to prevent such shocks," Daniel Savin emphasized. He said that it is not an exaggeration that experts call the MDL one of the most stable currencies in the region. While asked about the greater fluctuations of the MDL, which were in 2015-2018, Daniel Savin said that this is due to the fact that every year we become more experienced or learn lessons from previous crises. "We have a sufficient level of foreign exchange reserves, we have the ability to intervene in the right situations and an adequate monetary policy that allows us not to create additional shocks in the foreign exchange market," he said. When asked when Moldova will have a stable exchange rate, as, for example, in the Czech Republic and whether our country needs such a stable exchange rate, the director of the Financial Markets Department at the National Bank of Moldova said that, from a mathematical point of view, he does not think that the Czech Republic has a stable exchange rate. "But I would answer this question with another question: do we need a fixed or stable exchange rate? Probably not, perhaps, given inflation and independent monetary policy, the exchange rate needs to adjust to shocks. And the adjustment should be done slowly, without excessive fluctuations," he emphasized. Daniel Savin reminded that exchange rate fluctuations exist mainly because of the imbalance between supply and demand, and the greater the imbalance, the greater the fluctuations. When the fluctuations are too great, the National Bank intervenes. "The market needs fluctuations, but these fluctuations should be small," said the director of the Financial Markets Department at the National Bank of Moldova. When asked what makes us happy about the strong MDL, he reminded that the foreign currency is actually a commodity that is sold on the market. As in the market, there are buyers and sellers, and the buyer is interested in buying goods as cheaply as possible. And in the case of foreign exchange, all buyers are interested in buying cheap currency. The buyers are importers of goods and services, including the population as importers of services. At the opposite pole are those who sell the currency, exporters, including exporters of services and recipients of remittances, who get more lei (MDL) by selling the same currency. "Probably here we should talk not only about the exchange rate, but also about the difference between the exchange rates of our official partners, for example, Ukraine, Turkey. This is how the concepts of effective nominal exchange rate and real effective exchange rate appear here. Because the same exporter, in order to sell goods on the foreign market, needs the cost of these goods to be lower than the cost of production of goods in this country. We can have a depreciated exchange rate in nominal terms, but its appreciation in real terms. Because in real terms, inflation differentials are also taken into account, not just exchange rates. In all the National Bank's analyses, much attention is paid to the effective real exchange rate. An effective real exchange rate compared to our development partners, if it is more appreciated, will create additional problems for exporters and will make the products of the respective countries cheaper in Moldova," Daniel Savin emphasized. He noted that, thus, the strong MDL is more beneficial for those who buy currency: importers of goods and services. Besides, citizens who, having their salaries fixed in lei and buying products and services, the prices for which are set in foreign currency, also benefit from the strong leu to some extent. When asked how citizens should behave in relation to their money - "to spend or to save", the director of the Financial Markets Department at the National Bank of Moldova answered as follows: "It is important for the population to act reasonably and save and not to embrace extremes. It is important to manage incomes in such a way as to create, as the Central Bank does, a cushion of reserves. Thus, it would be useful for the population to have some reserves in case of future shocks." The reserves should ideally be in lei, he said. "And we, as the Central Bank, are promoting a policy to increase the share of savings in lei in our economy. But we have an understanding that each individual or legal entity manages its currency risk as it sees it. Accordingly, financial risks are managed in such a way that savings are in the currency in which they will be spent in the future. If we are going to spend in lei, let us save in lei. If we are going to have expenses in a foreign currency, for example in euros, it might be advisable to save some in euros as well. The matter concerns the currency risk and the way the population should understand this process," he emphasized. // 12.10.2023 - InfoMarket.
