ABSTRACT
Chapter 8 gets down to the core factors of the persistence of dollarization by analysing the major developments in the financial sector and central banking after the Rose Revolution (2003). The post-revolution reforms, the openness of the Georgian economy, the entry of foreign capital, and major legal changes that favoured international investors all encouraged the process of peripheral financialization in Georgia. Finance turned into one of the fastest growing sectors in Georgia and commercial banks became the main actors as well as the key agents of financialization. The process was driven by the inflow of foreign capital and strengthened by the government through the creation of greenhouse conditions for banks and international investors. A high level of dollarization did not disturb the FDI-led accumulation regime, quite the opposite – it encouraged the capital inflow, which was necessary to finance the current account deficit of the country. Moreover, the inflow of foreign capital, especially to the banking sector, further stirred up the process of dollarization through increased foreign currency lending by Georgian banks. The combination of excess liquidity of banks in foreign currency and the ‘discovery’ of housing as a safe collateral triggered a credit boom and the increased indebtedness of households in foreign currency. The central bank turned into a contested terrain of struggles among the government, commercial banks, the IMF, and foreign investors, which significantly weakened the agency and policy space of the National Bank of Georgia. Thus, dollarization and financialization have been tightly entangled processes in Georgia and moreover, financialization has strengthened the role of the dollar. Thus, peripheral financialization is analysed across three main dimensions in this chapter: financialization of the accumulation regime, monetary policy, and everyday life.
