Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

ARMENIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of April 30, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: May 29, 1997.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Financial transactions are restricted and accounts are frozen if they involve individuals or organizations included in the lists of terrorists maintained pursuant to (1) the relevant UN Security Council resolutions and (2) the list of current terrorist organizations designated by the U.S. Secretary of State.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Armenia is the Armenian dram.
Exchange rate structureUnitary.
Classification
Managed floating with no predetermined path for the exchange rateEffective January 1, 2006, the Central Bank of Armenia (CBA) pursues a policy of implicit inflation targeting (IT) with the objective of moving to a full-fledged IT over the medium-term. The refinancing interest rate is the operational target and the CBA intervenes in the foreign exchange market only for smoothing excessive exchange rate volatility. Foreign exchange transactions take place in the interbank and stock exchange markets. The CBA acts mainly in the stock exchange market. Since May 2006, the CBA increased the size and frequency of interventions in an effort to resist appreciation. As a result, the exchange arrangement has been reclassified, effective June 1, 2006, to the category managed floating with no predetermined path for the exchange rate from the category independently floating.
Purchases and sales of foreign currency may be implemented through foreign exchange entities licensed by the CBA, including banks, foreign exchange dealers, credit institutions, and foreign exchange bureaus; or, in the case of the government, through the CBA itself, which acts as the government’s financial agent. Foreign exchange entities carry out foreign exchange transactions by setting their own buying and selling rates for major currencies against the dram without any restrictions.
The exchange rate of the dram against the U.S. dollar is determined on the basis of exchange rates prevailing in the interbank and intrabank markets and in the stock exchange on the previous day. The official exchange rate is set as the weighted average of the foreign exchange market buying and selling rates. The official exchange rate is used for accounting purposes and for those treasury operations that are connected with external debt services or create new external obligations. Foreign exchange entities use the official exchange rate of the CBA for bookkeeping and revaluation purposes.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketResidents and nonresidents may freely negotiate forward exchange contracts for both commercial and financial transactions in all leading convertible currencies in the domestic exchange market and at major international foreign exchange markets. However, for the time being, the forward exchange market in Armenia is still undeveloped, although some banks sign forward contracts in small amounts. The CBA conducts foreign exchange swaps as a short-term instrument.
References to legal instruments and hyperlinksThe Civil Code of the Republic of Armenia, effective May 5, 1998; the Law of the Republic of Armenia on Foreign Investments, effective July 31, 1994; the Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on the Central Bank of Armenia, effective June 30, 1996; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; the Law of the Republic of Armenia on Credit Organizations, effective May 29, 2002; Justification for the Adoption of Inflation Targeting Strategy by the Central Bank of Armenia, 2006; CBA announcement on the Central Bank Operations in the Financial Market, May 1998; Regulation 10, Licensing, Regulation, and Control of Foreign Exchange Purchase and Sale Operations, approved by CBA Executive Board Resolution 436-S December 20, 2002; Regulation 11, Licensing, Regulation, and Control of Foreign Exchange Trading in Armenia, approved by CBA Executive Board Resolution 69 March 19, 2002; Regulation 12, Licensing and Regulation of Foreign Exchange Dealer Trading, approved by CBA Executive Board Resolution 437-S December 17, 2002; www.cba.am; www.parliament.am.
Arrangements for Payments and Receipts
Prescription of currency requirements
Use of foreign exchange among residentsUnder the new foreign exchange law, prices of and payments for goods, services, wages, and investments in statutory and share capital of legal entities are quoted and made, respectively, in drams only; prizes are advertised and paid out in drams also. However, the following may be denominated and transacted in foreign currency: (1) gifts, donations, and bequests; (2) noncash payments for non-trade-related transactions; and (3) noncash payments for current and capital account transactions between legal entities, between sole entrepreneurs, and between legal entities and sole entrepreneurs. Nonresident natural persons and residents are prohibited from using foreign exchange as a means of payment within Armenia.
Payments arrangements
Bilateral payments arrangements
InoperativeArmenia maintains agreements with the Russian Federation and Turkmenistan.
Regional arrangementsArmenia is a signatory of the 1993 Treaty of Economic Union (with Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, and Uzbekistan), which provides for the eventual establishment of a customs union, a payments union, and cooperation on investment, industrial development, and customs procedures. Armenia also joined the Agreement on the Establishment of a Payments Union of CIS member countries. Armenia is a member of the Black Sea Economic Cooperation pact, together with Albania, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, the Russian Federation, Turkey, and Ukraine. Bilateral free trade agreements have been signed with Georgia, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, and Ukraine, though only the agreement with the Russian Federation is in operation. Armenia is a European Asian Economic Community observer.
Clearing agreementsThere is an arrangement with Turkmenistan for the importation of natural gas. In addition, there are bilateral clearing agreements with the Baltic countries, the Russian Federation, and the other countries of the FSU, but all have become largely inoperative.
Administration of controlThe CBA is the main body that formulates and administers exchange rate policy and issues foreign exchange regulations within Armenia. The CBA also has overall responsibility for currency control, in close collaboration with the Ministry of Finance and Economy (MOFE) and State Tax Service (STS). The CBA is responsible for control over the entities licensed by the CBA, including banks, foreign exchange dealers, credit institutions, foreign exchange bureaus, and other financial entities. The MOFE is responsible for supervision and control over the entities licensed by the MOFE. The STS is responsible for supervision and control over the activities of all other agents.
Payments arrears
Privaten.a.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotes
On exportsIndividuals are authorized to transfer, deliver, and export securities and any cash currency, in both drams and foreign exchange, up to dram 5 million or the equivalent of $14,000 without any restriction. Exports of currency exceeding that amount are permitted through bank transfers.
Domestic currencyYes.
Foreign currencyYes.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; CBA Board Resolution 386-S on Export and Import of Currency Values, effective July 29, 2005; www.cba.am.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; www.cba.am.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; www.cba.am.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listImport licenses from the Ministry of Agriculture and the Ministry of Health are required and granted on a case-by-case basis to import drugs and other pharmaceuticals and pesticides. Imports of weapons, military equipment and parts, and explosives require special authorization from the government.
Import taxes and/or tariffsThere are two rates of customs duties: zero, which applies to most imports, and 10%, which applies to a variety of new materials and manufactured products. Products imported from countries in the CIS are exempt from import tariffs.
State import monopolyNo.
References to legal instruments and hyperlinksThe Customs Code of the Republic of Armenia, Article 102, effective July 6, 2000; www.parliament.am; www.customs.am.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesExport permits are required for medicines, wild animals, and plants. In addition, special government permission is required for the export of nuclear technology, nuclear waste, related nonnuclear products, and technology with direct military applications. Minimum threshold prices for the export of ferrous and nonferrous metals and the reexport of foreign-produced goods remain in force.
Without quotasYes.
Export taxesNo.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Customs Code of the Republic of Armenia, Article 102, effective July 6, 2000; www.cba.am; www.parliament.am.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; www.cba.am.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; www.cba.am.
Capital Transactions
Controls on capital transactionsExcept for real estate, currently, there are no controls on capital transactions. However, the CBA reserves the right to impose capital controls in order to maintain the stability of the financial system, prevent money laundering and terrorist financing, and lower economic risks.
Repatriation requirementsNo.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investmentNo.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsNonresidents are prohibited by the constitution from acquiring land in Armenia.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinksThe Constitution of the Republic of Armenia (with amendments), Article 31, effective July 5, 1995; the Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; the Law of the Republic of Armenia on Securities Market Regulation, effective July 6, 2000; www.cba.am; www.parliament.am.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsA uniform 8% reserve requirement applies to deposits by residents and nonresidents in both foreign and domestic currency. Effective January 1, 2007, the reserve requirement is remunerated at an annual interest rate of zero (previously, 3%).
Open foreign exchange position limitsEffective April 1, 2007, the limits on commercial banks’ open foreign exchange position were removed. Previously, the following limits applied to the gross foreign exchange position of commercial banks with respect to capital: (1) position in convertible currencies, 15%; (2) position in nonconvertible currencies, 5%; and (3) position in any currency, 10%.
Provisions specific to institutional investors
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksThe Law of the Republic of Armenia on Currency Regulation and Currency Control, effective June 28, 2005; the Law of the Republic of Armenia on Banks and Banking, effective June 30, 1996; the Law of the Republic of Armenia on Insurance Companies, effective June 11, 2004; www.cba.am; www.parliament.am.
Changes during 2006
Exchange arrangementJanuary 1. The CBA began to pursue a policy of implicit inflation targeting with the objective of moving to full-fledged inflation targeting over the medium term. During this transition, elements of its previous monetary targeting strategy will be maintained. The new framework relies on the refinancing interest rate as its operational target, and interventions in the foreign exchange market are used only for smoothing excessive exchange rate volatility.
June 1. The exchange arrangement was reclassified to the category managed floating with no predetermined path for the exchange rate from the category independently floating.
Changes during 2007
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 1. The annual interest rate at which the reserve requirement is remunerated was reduced to zero from 3%.
April 1. The open foreign exchange position limits for commercial banks were removed.

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