Trends in Dram Circulation

While reviewing the data on currency circulation recently posted on the website of the Armenian Economic Association, I was intrigued by the pattern of Drams held outside the Central Bank. The volume of Drams in circulation grew by some 47 percent in 2005, to 155 billion [see here, column N]. Of course this is not the first time that such rapid growth was experienced. The growth rate in 2002, for instance, was 38 percent. Indeed, Drams in circulation ranged from 26 billion Drams in 1995 to 155 billion in 2005.

It may be useful to explore the underlying trend of the various Dram denominations and examine where much of the growth is coming from. The 20000 note, with 40.2 billion Drams in circulation in 2005, has experienced the fastest growth since it was first issued in 1999 (see here). Similarly, the 10000 note grew rapidly since it was first issued in November of 2003, as well as the 50000 notes since it was first issued in June of 2001.

Here is the trend in circulation of the largest denominations (in billion Drams):

Denomination 2001 2002 2003 2004 2005
5000 drams 32.58 40.41 44.94 37.82 48.84
10000 drams 0.00 0.00 7.30 25.22 42.98
20000 drams 12.35 24.16 23.04 21.02 40.20
50000 drams 0.78 1.61 1.39 0.95 1.61

This trend is in many ways fascinating. But what explains it? What does it tell us about economic growth? About the shadow economy? About errors in measuring the true growth of the Armenian economy? Also, are there studies of the demand for the various denominations?