Baku, Azerbaijan, November 16 / Trend /
Trend Agency analytic center head Ellada Khankishiyeva
Annual definition of currency reserves management strategy also leads to revision of its currency structure. Currency reserves structure is defined on the basis of currency structure of foreign trade, foreign state debt, and currency, in which money and credit policy is pursued.
It is to conclude from analysis of these three components on Azerbaijan that assets in US dollars make up the key part of the country's currency reserves.
Azerbaijani export goods are traditionally priced at international markets in the US currency.
As the State Customs Committee of Azerbaijan reported, in January-September 2011, 96.44 percent of Azerbaijan's total export went in hard currency, of which the US dollar keeps its dominant position. Even those Azerbaijani exporters, who export raw materials and goods and receive earnings in euros, then convert euros into dollars that go back to Azerbaijan.
Given that the bigger part of Azerbaijan's foreign debt is counted in US dollars and in Special Drawing Rights (SDR) where US dollars also dominate, the US dollar, indeed, is the dominant currency in Azerbaijan's liabilities. The Finance Ministry of Azerbaijan reports that in 2010 the currency structure of debts consisted of 32.3 percent as US dollars, 27.8 percent as euros, 23.7 percent as SDR, etc.
As for Azerbaijan's money and credit policy, US dollar plays the major role here, too. As is known, the Central Bank of Azerbaijan (CBA) fully denied the use of bi-currency (dollar/euro) basket to calculate exchange rate of Azerbaijani manat and has been practicing two-sided - manat/dollar - exchange rate targeting since January 10, 2011.
Bi-currency basket had been applied in Azerbaijan since March 2008. The CBA explains it refusal from such basket use by that the exchange rates of major hard currencies have lately been highly volatile and that it is essential to keep the national currency stable. Macroeconomic analyses illustrate that the two-sided - dollar/manat - exchange rate targeting in the existing conditions is best of all complied with CBA goals, especially from the point of impacting inflation rate. The use of such mechanism will allow the CBA to launch the mode of a floating exchange rate in the long-term period.
As compared to a couple of years ago when Azerbaijan firmly went toward revaluation of the value of its assets in US dollars, today the CBA is not in a hurry to rid of the US dollar currency reserves, stressing that the currency structure of reserves requires no essential correction today. In addition, Azerbaijan is not the only country where the portfolio of currency reserves consists largely of US dollars. China, Russia and Japan, which are in a similar situation, also undertake no action on this occasion.
Azerbaijan is expected to receive an inflow of a comparatively large amount of petrodollars either this year or next year. The State Oil Fund of Azerbaijan (SOFAZ) reports that following the results of January-September 2011, its portfolio of investments consisted of 55.32 percent ($17.832 billion) as US dollars, 39.57 percent (9.432 billion euro) as euros, and 5.11 percent (1.57 billion GBP) as UK pounds.
As for 2012, the Government of Azerbaijan plans to keep the forecast of national currency/US dollar exchange rate unchanged: 0.79 manat/$US1.