Ellada Khankishiyeva, Director of Analytical Center of Trend
Latest developments in the financial markets of US and see-saws in the exchange rate of dollar have undermined the position of the America currency in world markets. Today, even more countries are thinking about refusing dollar USD as reserve currency. By doing this, they want to secure their markets and promote the role of national currencies.
According to International Monetary Fund, if in 1999 dollar assets accounted for 71% of all currency reserves worldwide, it makes 65% at present. A total of 25% of reserves of central banks and 39% of liquid demands in private sector are preserved in euros. Not only central banks and source companies, but also investment funds give preference to euro in their currency policy. Diversification of currency reserves reduces threat of losses from the change in rate of one of the currencies.
Azerbaijan has turned to diversification of currency reserves between dollar and euro since 2007. As a result, 60% of currency reserves of Azerbaijan are formed in US dollars and 40% in euro and pound sterling. NBA began to support cost of Azerbaijani manat in bi-currency basket against dollar and euro from 11 March. The basket has been formed by 30% in euros and 70% in dollars against previous 20% and 80% accordingly. Introduction of a new percentage enabled to reduce import of inflation, lessen risks of businessmen carrying out operations with Euro zone and secure neutral level of nominal efficient exchange rate of manat against currencies of the key trade partners.
As to the currency Azerbaijan uses in calculation with its trade partners, there are also certain changes. If in 2004, share of dollar in calculations on import operations of Azerbaijan made up 85%, this figure dropped to 76% at the end of 2007. But the share of euro went up from 7% to 20%. The share of euro also went up from 3.7% to 9.1% in export operations of non-oil sector for the last three years. The percentage of operations carried out in euro went up from 6% in 2005 to 13% in 2006 in the domestic currency market while share of dollar dropped from 89% to 85%.
Despite drop in rate of dollar in the calculations on export-import operations, it still retains its dominant position. Recently, president of Bank of Association of Azerbaijan Eldar Ismayilov said at a meeting with a delegation led by the secretary general of Association of Banks of Turkey Ekrem Keskin that favorable conditions have been created for Azerbaijan and Turkey to carry out trade operations in direct currencies - manat-lira as indirect conversions (manat-dollar, dollar-manat) are accompanied with big losses and lose of time because of the large scope of trade. It is worth mentioning that Azerbaijan maintains trade links with about 140 countries of the world while more than half of the export accounts for Euro zone.
The question in what currency world oil prices must be fixed assumes more significance by every passing day. Five Persian Gulf countries including Bahrain, Kuwait, Qatarm, Saudi Arabia and UAE have decided to create a currency union and to pass unified monetary unit - Gulf dinar. The authorities of the countries national currencies of which are connected with the rate of dollar for the most part, say they will pass a unified currency by 2010. But it may also take place in 2012 to 2015. Experts say countries fear drop in the rate of the dollar which their economy is closely connected. At the same time, they also point to too high inflation rate in the countries in the region.
For instance, Iran stopped supplying its oil to world markets in exchange of dollars since the end of 2007. Minister of oil of Islamic Republic of Iran Golamhuseyn Nozari believes that when rate of dollar drops, this currency loses its confidence. At present, the calculations for the supply of the Iranian oil are carried out either in euro or Japanese yen.
Azerbaijan's revenues from export of oil have dollar origin as well. However, State Oil Fund of Azerbaijan who is responsible for their conversion, balanced currency pattern of the portfolio under investment policy. According to the pattern approved by SOFAZ, the currency portfolio is balanced as follows: 50% of assets account for dollar and 40% accounts for euro. The remaining 5% - pound sterling and 5% - others.
As it is obvious, American dollar still accounts for the larger proportion of currency reserves of Azerbaijan. But, changes to the currency pattern are usually carried out very carefully. Central banks try not to make these changes public. The changes are usually not so large, because big changes can lead to depreciation in the currency in which their reserves are kept.
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