The manat did not fall, it digressed

On February 16, the Central Bank of Azerbaijan “untied” the national currency, the manat, from the fixed exchange rate of the US currency and replaced it with a euro-dollar targeting basket. The Central Bank explained that the rate change was provoked by the need to “stimulate diversification of the Azerbaijani economy,” rising world competition and export potential, and maintenance of sustainable balance of payments.

The chairman of the board of the Central Bank, Elman Rustamov, later said in an interview with Azerbaijani state television that a devaluation of the manat will not happen: any fall of the national currency's rate will be gradual, the Central Bank will take the interests of the country’s citizens into account. Nonetheless, the Central Bank’s actions have resulted in a drastic conversion of the national currency into U.S. dollars. Throughout the previous week, the Azerbaijani currency rate had been slowly falling until Saturday, when the Central Bank declared a new rate: 1 dollar = 1.05 manats. The official currency rate yesterday amounted to 1.0501 manats and 1.1906 manats per U.S. dollar and euro respectively. There are no fears that the manat would make an unexpected fall. Moreover, the Azerbaijani Ministry for Economic Development promised to control prices and prevent their speculative rise. 

Farhad Amirbekov, the president of the Baku Interbank Currency Exchange, has given details about the weakening national currency and explained whether it could have been prevented in an interview with Vestnik Kavkaza. 

“I think that today we can talk about the methods and speed of the changing currency rate of the manat against foreign currency, let us call them tactical issues. Concerning the strategy, the weakening of the manat is an objective situation, an objective reality related to the conclusion of the stage we call “the raw material model of the economy.” In our case, an oil [economy]. Doubtlessly, we need to adapt the economy to a new reality. I would certainly prefer a more predictable, softer devaluation, not sudden, to a great extent shocking,” the economist noted.

Regarding the chances of preventing such a dramatic weakening of the national currency rate, the expert assured that it was possible. “I think we could have done it more softly, by the way, just how it was presented to the public. In fact, for about ten days the Central Bank changed its demeanor on the currency market. First, the fixed currency rate to the dollar, then the bi-currency basket, i.e. a gradual change of the rate; and in just four days, such a devaluation, this time significant, by dozens of percents. Maybe the problem was not in the economic sector. Maybe,” assumes Farhad Amirbekov. 

The financier expressed confidence that the country will face growing inflation: “Part of the inflation throughout the year will be covered by certain measures. I am generally waiting, as an expert, to see what the Central Bank will have to say, what it is planning to do, and what our government is going to do. I think that they will soon follow.” 

It is noteworthy that a regulated weakening of the national currency rate is natural for the country in two cases: if the overpowered currency makes exported products too expensive and if most of budget income is accumulated from exports of products the prices of which make an unexpected fall on the world market. In the first case, devaluation of the national currency rate to foreign currencies reduces the cost of commodities produced for exports, making them more competitive by lowering their price. In the second case, it makes the budget more balanced. For example, if a budget is based on an oil price of $100 per barrel, when a barrel of oil costs $50, the state needs to lower the national currency enough to get the same amount of money from $50 per barrel. In fact, the Central Bank of Azerbaijan has devaluated the manat by 33%, pursuing both goals. A cheap manat would ease access of Azerbaijani goods to world markets and fill the treasury with all it needs to pay state workers, pensioners, low-income families, the unemployed and other categories of citizens.

Azerbaijan, like all sovereign states, pays money within the framework of social obligations in the national currency, so the old policy of strict tying to the dollar was a blow for the socially unprotected part of the population.

Elman Russtamov: “Devaluation of the manat will not happen”On February 16, the Central Bank of Azerbaijan “untied” the national currency, the manat, from the fixed exchange rate of the US currency and replaced it with a euro-dollar targeting basket. The Central Bank explained that the rate change was provoked by the need to “stimulate diversification of the Azerbaijani economy,” rising world competition and export potential, and maintenance of sustainable balance of payments.The chairman of the board of the Central Bank, Elman Rustamov, later said in an interview with Azerbaijani state television that a devaluation of the manat will not happen: any fall of the national currency's rate will be gradual, the Central Bank will take the interests of the country’s citizens into account. Nonetheless, the Central Bank’s actions have resulted in a drastic conversion of the national currency into U.S. dollars. Throughout the previous week, the Azerbaijani currency rate had been slowly falling until Saturday, when the Central Bank declared a new rate: 1 dollar = 1.05 manats. The official currency rate yesterday amounted to 1.0501 manats and 1.1906 manats per U.S. dollar and euro respectively. There are no fears that the manat would make an unexpected fall. Moreover, the Azerbaijani Ministry for Economic Development promised to control prices and prevent their speculative rise. Farhad Amirbekov, the president of the Baku Interbank Currency Exchange, has given details about the weakening national currency and explained whether it could have been prevented in an interview with Vestnik Kavkaza. “I think that today we can talk about the methods and speed of the changing currency rate of the manat against foreign currency, let us call them tactical issues. Concerning the strategy, the weakening of the manat is an objective situation, an objective reality related to the conclusion of the stage we call “the raw material model of the economy.” In our case, an oil [economy]. Doubtlessly, we need to adapt the economy to a new reality. I would certainly prefer a more predictable, softer devaluation, not sudden, to a great extent shocking,” the economist noted.Regarding the chances of preventing such a dramatic weakening of the national currency rate, the expert assured that it was possible. “I think we could have done it more softly, by the way, just how it was presented to the public. In fact, for about ten days the Central Bank changed its demeanor on the currency market. First, the fixed currency rate to the dollar, then the bi-currency basket, i.e. a gradual change of the rate; and in just four days, such a devaluation, this time significant, by dozens of percents. Maybe the problem was not in the economic sector. Maybe,” assumes Farhad Amirbekov. The financier expressed confidence that the country will face growing inflation: “Part of the inflation throughout the year will be covered by certain measures. I am generally waiting, as an expert, to see what the Central Bank will have to say, what it is planning to do, and what our government is going to do. I think that they will soon follow.” It is noteworthy that a regulated weakening of the national currency rate is natural for the country in two cases: if the overpowered currency makes exported products too expensive and if most of budget income is accumulated from exports of products the prices of which make an unexpected fall on the world market. In the first case, devaluation of the national currency rate to foreign currencies reduces the cost of commodities produced for exports, making them more competitive by lowering their price. In the second case, it makes the budget more balanced. For example, if a budget is based on an oil price of $100 per barrel, when a barrel of oil costs $50, the state needs to lower the national currency enough to get the same amount of money from $50 per barrel. In fact, the Central Bank of Azerbaijan has devaluated the manat by 33%, pursuing both goals. A cheap manat would ease access of Azerbaijani goods to world markets and fill the treasury with all it needs to pay state workers, pensioners, low-income families, the unemployed and other categories of citizens.Azerbaijan, like all sovereign states, pays money within the framework of social obligations in the national currency, so the old policy of strict tying to the dollar was a blow for the socially unprotected part of the popula