![If the Manat is strengthened, why does the exchange rate not change?](https://turan.az/resized/media/2023/main/062200063673-750-500-resize.webp)
If the Manat is strengthened, why does the exchange rate not change?
In Azerbaijan, the purchase of US dollars by banks has exceeded sales for the first time since 2018. According to the Central Bank (CBA), in the first five months of this year, 98 percent of foreign exchange auctions held by the central bank saw demand lower than supply. The nominal effective rate of the Azerbaijani manat has strengthened by 8.4 percent in 2022 and by 5.1 percent in the first five months of 2023.
Experts note that the exchange rate of the manat has been administratively determined since March 2017. Despite the government's announcement of a "floating exchange rate" policy in 2016, the exchange rate has remained unchanged for over six years, with 1 US dollar equal to 1.70 manat.
Aydin Huseynov, a member of the Milli Majlis Committee on Economic policy, Industry and Entrepreneurship, explained to Turan that the strength of the manat is related to the country's exports and strategic products. As the export of Azerbaijan's non-oil sector grows, the production of goods increases, leading to a stronger manat, according to Huseynov.
Economist Natig Jafarli told RadioAzadlig that the government has imposed restrictions on the sale, purchase, and withdrawal of US dollars from the country. Citizens are prohibited from buying more than $11,500 per year, and obtaining special permission and providing source documents are required to exceed this limit. There are also limitations on withdrawing dollars from the country, with stringent document requirements for transfers exceeding $20,000. Jafarli noted that collecting the necessary documents itself becomes a cumbersome process.
Due to these restrictions and the stability of the manat's exchange rate, citizens who previously held savings in foreign currency have begun converting their funds into manat. One of the reasons for this shift is that the average interest rate on deposits in foreign currency is around 1.5 percent, while the average rate for manat deposits is 10 percent. As a result, people are converting their dollars into manat and placing them in deposits, which has a certain effect on the exchange rate.
Jafarli also highlighted that the exchange rate in Azerbaijan is administratively regulated. While the Central Bank acknowledges that adopting a floating exchange rate could potentially strengthen the manat, the exchange rate in Azerbaijan is not determined by market economy principles. A shift to a floating rate would require multiple currency buyers and sellers, but currently, the State Oil Fund is the dominant player in the exchange market.
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- Social
- 22 June 2023 17:48
Finance
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