The Currency Market in Azerbaijan: Realities, Volatility and Perspectives

Abstract

The dollar /manat (AZN) spot exchange rate specifies how much one currency, the US dollar (USD), is currently worth in terms of the other, the manat . On the first of February 2017, the exchange rate of the national currency of Azerbaijan, the manat, hit a new record low; namely, 1 USD was exchanged for 1.92 AZN. Illegal black markets and psychological factors such as a lack of publicly available information and confidence about the real financial situation were the most severe underlying causes, coupled with the ineffectiveness of the implemented monetary, fiscal and exchange rate policies. Overall, the Monetary Authority of the Central Bank of the Republic of Azerbaijan (CBAR) lost its credibility abruptly in financial markets. However, it is noteworthy that the national currency of Azerbaijan has been gaining weight in its value recently. An 11.4% increase against the US dollar1 has been observed; that is to say, 1 USD now equals 1.70 AZN. A strict monetary policy on the part of the Central Bank of the Republic of Azerbaijan had an impact on market demand and led to an "Expensive Manat"�. A shrinking of the manat base through deposits and bond auctions paved the way for less manat in circulation, which led to a decreased demand for foreign currency. An expansive monetary policy for foreign currencies and restrictions on cash payments for businesses were the main reasons for the manat's consequent appreciation. As a result, the national currency of Azerbaijan, the manat, advanced against USD to the level of 11.4% in February-April 2017.