Azerbaijanis buy currency for trade operations in Russia - assumption of RAS expert

Baku/14.03.22/Turan: At a currency auction of the Central Bank on March 11 the demand for dollars rose 3.7-fold as compared to the auction of March 9, and made up $54.6 million. That is, the demand for dollars among Azerbaijani buyers has risen by nearly 4 times in 2 days. What are the reasons?

Turan raised the question to the Russian expert and researcher of the Institute of Economics of the Russian Academy of Sciences Alexander Karavayev.

He monitors the economic developments in Azerbaijan. After the embargo was imposed on Russia, A. Karavaev left an opinion in Meta about the opportunities for Azerbaijani business, especially in the Azerbaijani industrial zones: "...the issue of readiness of Azerbaijani infrastructure and tax regimes, as Russia has the largest economy and direct transport access for Azerbaijan. The best developed is the Sumgayit Chemical-Industrial Park where more than half of the production is exported, the key ones being SOCAR Karbamid and the SOCAR Polymer plant.  In Pirallahi industrial park there is pharmaceuticals...".

Asked about the jump in demand for currency in Azerbaijan A. Karavaev replied:

- The purchase of currency at the CBA auction is stimulated by the war in Ukraine. Azerbaijanis are expecting price growth and possible shortage not only of staple foods, but also of building materials, household appliances, clothing... There is a desire to invest in hard currency.

The Russian and Azerbaijani economies are strongly linked through the integration of food markets, businessmen from the diaspora. Azerbaijan imports a lot of Russian products and exports its goods to Russia. The dollar's jump against the ruble is received with anxiety by the Azerbaijanis. They are afraid that the sanctions will indirectly spill over to Azerbaijan. It will definitely happen, so people want to hedge themselves.

There will be an acute shortage of cash dollars and euros in Russia. The Russian Central Bank issued a decree at the end of the week freezing deposit accounts for six months, so a maximum withdrawal of currency during this period can be up to 10 thousand dollars. There are restrictions on buying currency in the Russian Federation.  The restrictions will be circumvented in various ways, however, there will be an impact on the currency exchange rate.

Also, on the other side of the iron curtain, President Biden has banned supply of cash dollars to Russia. Earlier the importation of dollars used to be based on orders from Russian banks.

As a result, Russian trade transactions with neighbouring countries which used to be calculated on the basis of the ruble-dollar exchange rate. A lot of things were pegged to the dollar. Now there is a shortage of currency, currency settlements are difficult. These traditional ties cannot quickly switch to the rouble, for example the yuan or gold. And the old financial schemes are blocked. There are still possibilities for inter-bank coordination through intermediary countries. Here, each economic actor will do what it needs to do. 

If at the intergovernmental level and at the level of large state-owned companies of Russia and Azerbaijan the settlements will be made in the ruble corridor, then at the level of small and medium-sized businesses one can expect penetration of dollars and euro from Azerbaijan to Russia, to ensure trade relations at the small and medium level of the economy. A shadow currency market will inevitably start to operate in Russia in which Azerbaijanis can participate. -0-