What does it promise for Azerbaijan?
The auctions held in Europe on 12 September resulted in a new record drop of the USD rate compared to the euro (€1-$1.3903). For the first time in the history of the world's economy, the rate of the dollar dropped so much compared to euro.
Although the volume of dollars in the Azerbaijani economy is decreasing (for instance, deposits put to Azerbaijani banks in national currency increased 3.2 times this year, while the deposits put in foreign currency decreased by 29%), the dollar is still the following for Azerbaijan:
- the most liquid world currency,
- the main currency received from oil projects,
- the main foreign currency used in calculations of foreign trade operations,
- the currency with a rather wide internal currency market, and
- the currency in which salaries in most private companies are paid and consequently in which the most of the population saves its money.
Eighty percent of world's goods turnover is carried out in dollars. Moreover, dollar is also world reserve currency, so almost central banks store a huge part of their reserves in dollars. Therefore, all currencies consider their rate with respect to dollar. Many analysts equate price of oil with dollar's rate, for sale of oil worldwide is virtually held in dollars. When oil prices rapidly increase, dollar rate generally decreases.
The price for oil reached record level - almost $80 per barrel. Moreover, a further rise in oil prices is expected. That means Azerbaijani economics will receive petrodollars which will result in strengthening of manat and weakening of dollar.
Although drop in dollar exchange rate still horrifies Azerbaijani citizens, most of them have already decided in which currency to save their money. According to the National Bank of Azerbaijan (NBA), a total of the savings and deposits in July, 2007 increased by 40% compared to July, 2006 from AZN 1,764mln to AZN 2,470mln. As a result of last 12 months, the manat savings increased 3.2 times and the savings in foreign currency by 29%.
Manat savings and deposits at claim in the general portfolio increased by 93% within a year, and time deposits rose 4.6 times. As a result, the specific weight of time deposits and savings in the general portfolio increased from 27.7% to 47.5% between July 2006 and July 2007.
The specified weight of savings and deposits in foreign currency decreased 21% between July 2006 and July 2007.
NBA notes rise in non-residents' manat savings in Azerbaijani banks. Natural non-residents' short manat savings increased 6.6 times, and long dated manat savings increased 3.3 times by 1 August 2007 compared to August 2006.
These figures show that manat is strengthening compared to hard currency and the trust of Azerbaijani population and foreign citizens for manat increases.
From the beginning of the year, USD weakened compared to manat by AZN 0.02, and that is not an end. On the whole, analysts forecast a further weakening of the USD position's in the world's financial markets. The exchange rate is expected to comprise €1 - $1.4 by the end of this year.
Investors' preference for manat to dollars is caused by two opposite dynamics in movement of USD and euro. Thus, financial markets expect US Federal System to decrease dollar's bank rates in near future, which will decrease profitability of dollar bank savings. In its turn, the European Central Bank does not rule out it will have to increase euro's bank rate due to inflation threatening. As a result, the operators which work providing bank savings are available in markets urgently exchange their dollar assets to euro. Increasing demand in euro causes shortage of euro and a consequent rise in exchange rate.
Rise in euro exchange rate improves its role in Azerbaijan's internal currency market. A rise in the rate of the euro improves its role in Azerbaijan's internal currency market. But as the euro is not likely keep the same high level Azerbaijan's national currency may suffer. The prices for European goods are rising and that can stimulate inflation in the near future
The country obviously loses in a situation when it receives dollars, because one-fifth of imported goods fall on Europe. Due to difference in USD and euro rate in the favour of the latter, the volume of goods purchased in Eurozone in USD will decrease.
The Eurozone has not fundamental reasons to support the strength of euro, so economic growth remains weak. On 11 September, the European Commission decreased the forecasts of economic development in Eurozone for 2007 due to increasing risks of world economics to slow down against a background of the crisis in credit markets.
According to current forecast for Eurozone, all 13 states using euro will experience a decrease by 0.1 points from 2.6% to 2.5%. The economics of the entire Eurozone will experience 2.8% rise in 2007 while 2.9% was forecasted.
As for the United States, it officially stated about its being interested in controlled weakening of dollar. Weak dollar will fortify positions of US export and, consequently, will promote restoration of the US economy's growth. So, rise of euro compared to dollar is also supported by the policy pursued by the US authorities and intended for restricted devaluation of dollar. The point is during the recent several years the US hesitates between increasing deficit of federal budget and foreign trade balance and the necessity to back the interests of foreign investors to US economics.
Consolidation of Azerbaijan's manat compared to dollar can cause harm to the economy of Azerbaijan only in case of inflation, for consolidation of manat is one of the anti-inflation measure held by the NBA. Constant weakening of manat deprived Azerbaijan of the stimulus to save its money in manats. However, excessive consolidation of manat's official rate to dollar is fraught with serious consequences for Azerbaijan's economy. In the terms of the conditions of foreign trade excessive drop of dollar is not good for Azerbaijan, for that worsens the position of Azerbaijani exporters and fields oriented to internal demand along with simultaneous improvement of importers' position.
Unstable world financial system based on one reserve currency, which is dollar, has been spoken about for a long time. Analysts consider it necessary to establish a system to be based on several main currencies. Such system will be less subjected to different risks. The most optimal way for the population not to lose is to save the money in different currency, both in manats, euros, and dollars.