Like many former Soviet republics, Georgia used the Russian ruble as a unit of currency after achieving independence. In April 1993, however, the Georgian National Bank introduced a coupon currency to alleviate the shortage of Russian rubles, which was hampering payment of government salaries. Priced on a par with the Russian ruble, the currency was supposed to circulate with the ruble but by August 1993 it had become the sole legal tender. The value of the currency was expected to be maintained by the proceeds from privatization, but when these failed to materialize, a large quantity of unsecured credits were issued with the predictable consequence of rampant inflation . By 1994 US$1 was worth 2 million Georgian coupons and inflation was at 100 percent per month. Not surprisingly, most transactions were carried out in U.S. dollars or Russian rubles.
|Exchange rates: Georgia|
|lari per US$1|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
The government introduced a new currency—the lari—on 25 September 1995, which became the only legal tender a week later. Coupons were exchanged at the rate of 1 million per Georgian lari (GEL). Due to the economic reforms that had already begun to take effect and the absence of war, the lari proved to be far more successful than its predecessor. Introduced at the rate of 1.23 Lari per U.S. dollar, the currency has remained relatively stable, declining to 1.35 lari by August 1998 and to 1.97 lari by September 2000. The rate of exchange dipped in the early months of 2001, reaching 2.11 by the middle of February, a decline that was attributed to economic crises in Turkey.
Only the Russian ruble is used in Abkhazia and South Ossetia. Though the lari is accepted as legal tender in the Armenian-populated region of Javaketi, the Armenian dram and the Russian ruble are the dominant currencies, the latter due to the presence of Russian troops. The relative stability of the lari since 1995 contributed to the reduction of inflation. With the ruble in circulation in 1992, inflation had stood at 913.1 percent for the year but war, the failure of economic reforms, and the introduction of the coupon saw this figure rocket to 7,380 percent in 1994. The rate of inflation dropped to 57.4 percent in 1995, 13.8 percent in 1996, 7.2 percent in 1997 and 4.6 percent in 2000.