Azerbaijan's Strong Currency: What's The Secret?

Azerbaijan's currency, the Azerbaijani manat, is one of the world's most stable and valuable currencies. Ranked among the top ten most expensive currencies globally, the manat has maintained its stability despite economic slowdowns and declining oil prices. The Central Bank of Azerbaijan has played a pivotal role in preserving the manat's strength, ensuring a consistent exchange rate and macroeconomic stability. While Azerbaijan's economy is heavily reliant on oil exports, the country's financial resilience sets it apart from other former Soviet republics. The Azerbaijani manat's robustness is a testament to the country's successful economic management and its ability to navigate global economic challenges.

The Central Bank of Azerbaijan's role in stabilising the manat

The Central Bank of Azerbaijan (CBA) has played a crucial role in stabilising the manat, the national currency of Azerbaijan. The CBA has actively intervened in the foreign exchange market to maintain the stability of the manat, particularly against the US dollar.

In 2014, the CBA made $1.270 billion worth of purchase interventions over 11 months to prevent a sharp appreciation of the manat against the US dollar due to supply exceeding demand in the FX market. This action demonstrated the CBA's commitment to maintaining a stable exchange rate for the manat, which it considers a critical policy priority.

The CBA's efforts have been particularly notable during economic downturns and global crises. For example, during the 2008 global financial crisis and the oil price slump in 2014, Azerbaijan's economy was affected, but the CBA successfully kept the manat stable.

The CBA's interventions have been so effective that international rating agencies have recognised the Azerbaijani manat as the most stable and reliable currency in the CIS, Eastern Europe, and resource-rich countries. This stability is especially remarkable considering that the manat historically tracked global oil prices, and the oil market is known for its volatility.

However, the CBA's insistence on pegging the manat to the dollar may have limitations. If inflation reaches double-digit levels again, as it did in 2016 and 2017, the CBA may be forced to allow the manat to appreciate, which could happen sharply. Nevertheless, the CBA's actions have undoubtedly contributed to the strength and stability of the Azerbaijani manat.

The impact of oil prices on the Azerbaijani currency

Azerbaijan's economy is heavily reliant on oil exports, and its currency, the manat, is one of the most valuable currencies in the world. Oil price fluctuations have a significant impact on the country's macroeconomic indicators, including its exchange rate.

When oil prices rise, the Azerbaijani manat tends to appreciate against the US dollar and other currencies. This appreciation is driven by several factors. Firstly, higher oil prices lead to increased oil revenues for Azerbaijan, which boosts the country's economic growth and foreign exchange reserves. Secondly, the influx of foreign currency from oil exports can create excess supply in the foreign exchange market, putting upward pressure on the manat's value. Finally, higher oil prices can trigger a "Dutch Disease" effect, where the booming oil sector attracts capital and labour away from other sectors, leading to a decline in exports from those sectors and an increase in the cost of non-tradable goods. This can further contribute to the appreciation of the manat.

However, when oil prices fall, the opposite effect occurs. Lower oil prices lead to a reduction in Azerbaijan's oil revenues, causing a slowdown in economic growth and a decrease in foreign exchange reserves. This can result in a depreciation of the manat as the central bank may intervene to stabilise the currency. Additionally, lower oil prices can alleviate the "Dutch Disease" symptoms, as the non-oil sectors may become more competitive and experience growth.

Overall, the impact of oil prices on the Azerbaijani manat is complex and depends on various factors, including the country's economic policies, the structure of its economy, and the behaviour of other currencies in the region.

The history of the manat and its relation to the Soviet ruble

The manat is the national currency of Azerbaijan. The word 'manat' is related to the word 'amanat', which in Azerbaijani means 'deposit', 'savings', or 'treasure'. The word 'manat' is also said to derive from the Russian word 'moneta', meaning 'coin' in Latin.

The manat was introduced in 1918 as the currency of the first Azerbaijan Republic. It was pegged to the Russian ruble, with an exchange rate of 1 manat to 1 ruble. The manat was also used in other Soviet Republics, including Georgia and Turkmenistan.

The Soviet ruble was introduced in 1922, replacing the Imperial Russian ruble. The Soviet ruble continued to be used in post-Soviet states until 1993, when it was replaced by the Russian ruble in the Russian Federation and by other currencies in other post-Soviet states.

During the Soviet era, the Azerbaijani manat was replaced by the Soviet ruble as the official currency of Azerbaijan. However, the word 'manat' continued to be used to refer to paper money in the country. After the collapse of the Soviet Union, Azerbaijan reintroduced the manat as its national currency in 1994.

The use of US dollars and other foreign currencies in Azerbaijan

The Azerbaijani Manat (AZN) is the official currency of Azerbaijan. However, US Dollars are widely accepted for currency exchange in Azerbaijan, and it is recommended for travellers from India to carry US Dollars as their primary currency. This is because the Manat is difficult to find and expensive to buy in India, whereas US Dollars are readily available at competitive exchange rates.

US Dollars can be exchanged for Manat at multiple locations throughout Azerbaijan, including banks and foreign exchange centres. It is also possible to withdraw Manat from ATMs using a forex card loaded with US Dollars. Carrying US Dollars as cash is also recommended for small purchases, tipping, and emergencies.

Credit and debit cards from VISA and Mastercard are also accepted in Azerbaijan, especially in touristy establishments. However, it is advised to inform your bank about your travel plans to avoid your card being flagged for suspicious activity.

The importance of the manat for Azerbaijan's economy

The manat is the national currency of Azerbaijan, and its stability is critical for the country's economy. In 2015, Azerbaijan's currency was ranked among the top 10 most expensive currencies globally, and international rating agencies have recognised it as the most stable and reliable currency in the CIS, Eastern Europe, and resource-rich countries.

The Central Bank of Azerbaijan plays a crucial role in maintaining the manat's stability. During the 2015 oil price slump, the bank intervened to prevent sharp appreciation of the manat against the US dollar, spending $1.27 billion on purchase interventions over 11 months. This commitment to stability was also evident during the 2008 global financial crisis, and the bank has stated that a stable exchange rate is a critical policy priority.

The manat's stability is closely tied to Azerbaijan's oil-dependent economy. While the country has diversified into other sectors, oil revenues remain significant. When oil prices dropped in 2015, Azerbaijan's economy suffered a double devaluation. However, with rising oil prices, Azerbaijan can accumulate foreign currency reserves, which can be sold to stabilise the manat and keep inflation low.

The manat's stability has benefits for both Azerbaijan's economy and its people. A stable currency helps maintain macroeconomic stability and protects household savings. Additionally, a strong currency facilitates trade and investment, contributing to Azerbaijan's economic growth.

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