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In 2021, one euro was exchanged as an annual average of 122.44 lek in the domestic market, marking the lowest historical level as an annual average, since 2002, when the common currency began to be physically traded, according to data from the Bank of Albania, processed by “Monitor”.
Until now, the minimum historical record was set in 2008, when the annual average was 122.8 ALL. Subsequently, the common currency started an upward trajectory, mainly influenced by the high level of transfer of profits of foreign enterprises, mainly mobile companies, which increased the demand for foreign currency. In 2013, the highest annual historical average was recorded, of 140.26 ALL. Until 2016, the exchange rate was stable between 139-140 ALL.
Starting from 2016, the common currency marked a rapid decline, dropping to 123 lek in 2019, with a depreciation of 12.3% from the high record of 2013. In the pandemic year 2020, the euro strengthened slightly to 123.8 lek, for the first time in 7 years, mainly influenced by its strong appreciation in the first days of the pandemic, where the blockage of flights temporarily caused problems with the supply of foreign currency banks .
The euro started the year 2021 at the level of 123.6 lek, which is the highest level recorded this year. In summer, a period when currencies traditionally depreciate due to seasonal inflows from emigrants and tourists, the common currency dropped to 121.3 lek. At the end of October and the beginning of November, the euro again approached the level of 123 lek, influenced by the high demand for foreign currency of state energy companies for the purchase of energy from imports. While in December, the euro started to fall before the start of seasonal effects, then dropped to 28.36 lek on December 28, the lowest level since December 2007, when the euro fell for one day to the lowest daily level of all time. , of 120.18 ALL.
Reasons for the fall of the euro in recent years
Fluctuations of the lek exchange rate against the euro and other currencies depend on two factors, the first is the demand and supply of foreign currency and the second is the performance of currencies in international markets.
Theoretically, the performance of supply and demand is reflected in the balance of payments indicator published by the Bank of Albania, which measures the inflows and outflows of foreign currency in the country. Albania is historically in deficit, which means that more currency leaves the country, mainly due to high demand for imports, than it enters, from sources such as remittances, income from work abroad, tourism, etc.
An improvement in the balance of payments deficit should lead to the appreciation of the local currency, as it would indicate that more currency is entering the country.
But, practically the opposite has happened. From 2016 to 2020, the balance of payments deficit has worsened (from -813 million euros to -1.1 billion euros), but at the same time, the domestic currency strengthened by almost 10% against the euro. Market participants claim that the euro supply has been driven by informal activities, with the currency being channeled mainly to the construction sector. This trend has continued in 2021, where experts contacted during the year by Monitor have often stated that the market has a high supply of currency, while demand for it is relatively weak.
Winners and losers
The fall of the euro makes imports cheaper, as about 70% of imports are made in this currency. Even individuals traveling abroad for vacations or other reasons with the same amount of money can buy more currency. Positive is the fall of the euro for all borrowers who have income in lek and pay monthly installments in vata. Negatively affected are individuals who are paid in foreign currency. The losers from the continuous devaluation of the euro in the country are the exporters, who collect in lek at least 12% less for the same amount sold in foreign currency than about a decade ago, while it is almost impossible for this loss to reflect on price.
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