The National Bank of Georgia (NBG), the state's central bank, was founded in 1991. The NBG has the functions of a central bank, namely issuing currency, managing the exchange rate, controlling monetary and credit aggregates, and regulating the activities of the banking sector. Among the more important NBG actions recently has been an increase of the minimum capital requirement from 500 Lari ($385) in 1997 to five millioin Lari ($2.4 million) in 2001.
In September 1995 Georgia introduced a new currency, the Lari, to replace its interim currency, the coupon, at the rate of Lari 1=coupon 1,000,000. The coupon had been introduced in May 1993 after the collapse of the rouble zone in response to a severe cash shortage in the republic. The coupon experienced one of the steepest devaluations of any currencies in the former Soviet Union, plummeting from around coupon 1,000 = $1 shortly after its introduction to coupon 1,550,000=$1 by December 1994. The coupon was scarcely used by the private sector, where the majority of transactions were carried out in dollars and roubles.
The government has since had more success with the Lari. The new currency was introduced at Lari 1.3 = $1, and given the dramatic success in reducing inflation, by the end of November 1996 it had appreciated in nominal terms slightly to trade around 1.28=$1. However, by 2001, it had lost some value, trading at 2.07=$1.
At the time of independence there were, in addition to the NBG, five specialized commercial banks, about 200 small domestic commercial banks, and the former Georgian branches of the Soviet Savings Bank and Vneshekonombank. During 1993 and 1994, a large number of small banks were set up, peaking at 227 by mid-1994. Several of these have since collapsed, leaving creditors bankrupt. In December 1994, the central bank stripped 28 commercial banks of their licenses on the ground that they had insufficient funds. In June 1995, the head of the central bank, Nodar Javakhishvili, moved to further stiffen capital requirements and stripped 22 more banks of the licenses. This was followed in July and August with similar measures that resulted in 58 additional banks losing their licenses. Also during 1995 was the merger of three state banks (Eximbank, Industrial Bank, and the Savings Bank) into the United Georgian Bank. State-owned banks accounted for some 75% of banking sector assets.
The first foreign bank, the Georgian-US bank, was opened in T'bilisi in early 1994. In September 1996 a joint investment bank began its operations with its founding capital contributed by the United Georgian Bank, the Commercial Bank of Greece, and the European Bank for Reconstruction and Development (EBRD). Emlak Bankasi, a Turkish bank, and the Caucasus Development Bank, based in Azerbaijan, currently maintain offices in T'bilisi. In 1997, the EBRD announced that it is to lend $5 million to Absolute Bank, a US-Georgian joint venture, with 60% US ownership. The bank has $3 million in assets, making it one of the largest Georgian banks in terms of capital.
Other commercial banks include the Agricultural Bank (1991), the Bank of Industry and Construction (1991), Housing Bank of Georgia (1991), and the State Savings Bank (1989).The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $190.2 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $356.0 million. The money market rate, the rate at which financial institutions lend to one another in the short term, was 17.5%.
The Caucasian Exchange, a stock exchange, opened recently in Georgia.