WEEKLY ECONOMIC REVIEW

Last week saw crumbling of the cash rate of US dollar. The shock news appeared on Saturday, 17 September, in a non-working day of the currency exchange. Unusual drop in the rates of US dollar which started in the point of 4500 manats gradually grew and late in the day a US dollar was sold at 4000 manats. The fall tendency continued on Sunday, when the hard US dollar was estimated event at 3800 manats. Finally, on Monday the US rates were �returned’ to previous position at 4500 manats, while it yielded to the figure fixed prior to the crisis.

The exchange rate of dollarРѕР№ decreases under the pressure of macroeconomic factors. However, fall occurs fluently and without special jumps. Till 17 September the rates of cash dollar followed the exchange rate and no one would imagine such a serious collapse. What was the reason then?

Official clarification is based on technical factors and speculative players. The Cabinet of Ministers told a local television channel on Saturday that major reason causing a drop in manat rate was a deficit in manat. As a result of an irregular gathering it was resolved to throw 50bn manats in market from the special account of the National Bank of Azerbaijan, issue a permit for publication of old notebooks currently in circulation. The NBA expects to receive a new batch of 250bn manats in cash only 15 October 2005 and 500bn manats on November 2005.

The same day Shahmar Movsumov, the Director of the National Bank, told local television channel ANS that along with the deficit in manats, the speculation by players in the currency market and agiotage in population were the factor complicating the situation.

"The crisis [fall of the cash currency rate of US dollar to 3800 manats in case of official exchange rate of 4577 manats] was a result of negligence by the bank which did not acquire the national currency from the National Bank of Azerbaijan (NBA) on Friday to ensure the activities of the exchange places. The banks which received the national currency did not distribute it among the exchange places, motivating that the exchange places should independently purchase and sell currency.

So, what was the reason for the last events: speculative game or negligence? Irrespective on the kind of the factor, sharp drop in US rates by 10% makes doubtful the confidence in the financial authorities. And it occurs amid the forthcoming denomination of manat and increase of public confidence in the banking system.

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