If earlier the world public hesitated to what currency give preference in keeping their savings - USD or Euro, now their make one choice in favor of Euro. Over the recent period, Euro demonstrated itself as a strong currency while the USD decreased to its historical minimum. The experts state that the process of refusing the USD which began from the mid of the last year already continues with full rate. The gold-currency reserves in the USD are decisively becoming cheaper. The oil, reaching its records, becomes more expensive not only due to the stock speculation and political threats, but also continuously weakening USD. Thus, earlier there was great demand for the 'green', today many hunters get rid of the cheaper currency.
It will not be again interesting for the Azerbaijani riders, being informed of the situation in the world currency markets and sustaining the impacts of the USD fall, to observe the movement of AZN in relevant to two key world currencies and make relevant conclusions.
If to take into consideration the period of one year (from the end of March 2007 to March 2008), we can notice that for this period, the USD decreased by 3.4% while Euro increased by 14%. This difference will grow and most probably will justify the forecasts of the government, as well as may overstep the exchange rate of the USD at 0.831 defined in 2008 Public budget. The world forecasts on the key currencies also highlight further fall of the USD and increase of Euro.
According to Jeff Frankel, the Professor of the Harvard University and former economic adviser of the former US President, Bill Clinton, in the coming decade, Euro will replace the USD as a leading world currency. He considers that USD's losing of its status of the world currency will take place not by 2022, but 2015. The fall in the USD rate over the recent period and general weakening of its strategic position as a result of growth of the U.S. State debts before China and Japan will help it.
Josef Stieglitz, Chief Economist at the World Bank, also agrees with this conclusion. He stated that erosion will take place in the USD position as a result of gigantic growth of the double deficit in the USA (budget and current trade balance deficit).
According to Frankel and Stieglitz, the USD's losing its leading position in the world financial system will have most negative geo-political impact for the USA and it will decline the US influence in the world.
Many experts consider that the US economy is already under recession, which will come after two quarters of the GDP fall. Inflation remains at high level and several indicators of inflation expectations increased.
Meanwhile, the US Federal Reserve system again sharply decreased the key interest rate in order to put an end to the strong irritability in the financial markets and give impulse to the weakening economy. Last Tuesday the rates were decreased by 75 base points up to 2.25% from 3%. However, this decrease assumed less significance than expectation. Most analysts expected the decrease of the key rates by 50 base points up to 2.50R annually.
Thus, the US Finance Minister, Henry Paulson, stated that currently the US economy appeared before sharp fall. He believes that the situation will change after several months. At the same time, the world countries gradually refuse dollar deals, giving preference to Euro.
The Government of China has repeatedly made statements regarding decrease of the share of the State dollar savings. At the third quarter of the last year, the currency reserves reached $1.434 trln. This amount is decrease each day.
In the recent years, the USD was used for accounts by most of exporters from various countries of the world. However, sharp fall of the USD force the exporters to re-consider their attitude towards the USD. Unfortunately, the export operations in Azerbaijan continue to be accounted with the USD. According to the date by the National Bank of Azerbaijan, the share of the USD in the currency flows of the Country makes up nearly 90% and it is difficult to change it. For instance, since the beginning of 2008, the USA has been key foreign-trade partner of Azerbaijan (22.47% of all export). As known, the USA purchases oil and oil products from Azerbaijan and make payment for them with the USD. With regards to exporters of other products, they suffer from the excessive raise in AZN and increase in prices for these products makes them non-competitive in the foreign markets.
Due to the processes in the world financial markets, in March the National Bank of Azerbaijan made a decision on application of currency basket being comprised of USD and Euro. A decision by the National Bank of Azerbaijan (NBA) to pursue a rate policy on the basis of a two-currency basket (dollar and euro) aims at preventing the nominal effective rate of the manat from further dropping which has dropped by 1% since the beginning of the year.