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Azerbaijan avoids dollarization of 70% of money supply – Central Bank

Decision of the Central Bank of Azerbaijan (CBA) on the adjustment of the national currency helped to avoid dollarization of 70 percent of manat money supply, the chairman of the Central Bank of Azerbaijan Elman Rustamov said March 18 during the discussion in the Milli Majlis (parliament of Azerbaijan) on the government’s report on the activities in 2014.

“When we switched to the two-currency basket [Starting from February 16, CBA refused to peg the manat to the dollar], it brought specific dynamics to the national currency, which began to be felt in the market,” he said. “As a result, we have witnessed great excitement among the population. Every day we were releasing $500 million into the market to reduce the stir. Given the fact that the foreign exchange reserves of the Central Bank account for just over $10 billion, it is easy to calculate how fast they would be spent.”

He said that the massive dollarization could lead to the fact that 70 percent of manats supply would be converted into US dollars, and this would lead to loss of control over monetary circulation and the national currency rate, so it was decided to adjust the manat rate.

If the Central Bank did not change the rate of manat, then given the fact of devaluation of national currencies in neighboring countries, on the one hand, competitiveness of Azerbaijani goods on foreign markets would decrease, on the other hand, the situation of the local businesses that provide the domestic market with their products would have worsened, according to Rustamov.

On February 21, Central Bank has established rate of the manat to the US dollar at 1.05 manat per dollar (compared to 0.7844 manat earlier), which corresponds to the cheapening of rate by 33.9 percent. In this case, the official rate of the euro to the manat consolidated by 33.8 percent – up to 1,195 manats.

By Azad Hasanli