TOPIC OF THE WEEK: The Carnegie Paradox; After the surge, CCA currencies move from boom to balance

CAUCASUS / CENTRAL ASIA - Report 19 Dec 2025 by Ivan Tchakarov

It may only be natural to have my last TOPIC OF THE WEEK for the year attempt a kind of philosophical diversion into, and analysis of, a recent Carnegie Endowment post titled "Passions over Ararat. Why is Pashinyan trying to change the Armenian national identity?" I zoomed in on this piece for a variety of reasons. First, I happen to enjoy reading diverse political opinions. Second, I just argued in my 2026 Caucasus and Central Asia Outlook that it will be Armenia that holds the key focus in the CCA space this year given the much anticipated and geopolitically-critical Jun vote. Third, I have spent a lot of time over the course of the year analyzing domestic political dynamics in Armenia, starting with the municipal elections in Gyumri, the rising momentum to impeach Pashinyan, the PM's attack on the Church, and the most recent local vote in Vagharshapat. Fourth, I have in essence argued that the battle of ideas between Pahinyan's "peace through concessions" and the opposition's insistence on preserving national identity represents the very focal point of what is currently transpiring in Armenia and what is also being addressed in the Carnegie piece from an interesting intellectual and ideological standpoint.

I also could not pass up the opportunity to say some final 2025 words on one of the key macro-financial issues in the CCA space this year, i.e., the now extended period of atypical CCA strength, which has created a highly beneficial environment to profit from high-yielding local assets. I continue to look to the RUB as the key barometer of how long the CCA currencies will remain so richly valued. CBR's Dec 8th decision to lift restrictions on household foreign currency outflows shows that Russia may no longer be willing to tolerate a very strong RUB, suggesting that CCA counterparts may also turn around. Yet, I consider it unlikely that the CCA currencies will trace back their early 2025 values given current expectations that the resumed RUB weakness vs the US$ will only be relatively moderate. This suggests that the anticipated path of CCA currencies will be one that can be best characterized as normalization, rather than anything close to a collapse.

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