OREANDA-NEWS. August 20, 2012. Manat, one of the key attributes of sovereignity, was issued to circulation on August 15, 1992 upon restoration of state independence of the Republic of Azerbaijan, reported the press-centre of CBA.

However, the Azerbaijani manat rapidly depreciated in the first years of circulation due to non-robust socio-economical bearings, because the release of the national currency to circulation coincided with the political and social instability in the country. The country had lost roughly 60% of its economic capacity. The average rate of economic downturn approximated 20%.

On the other hand, the macrcoeconomic management mechanism was paralyzed. The country was living through a serious budget – financial crisis. The deficit of the state budget surpassed 10% of the GDP, which was covered by issue of money.

The country nearly had no foreign exchange reserves. Thus, the exchange rate of the currency was not regulated. As a result, over the two-year period in circulation manat depreciated against USD 18 times as much. The population and economic subjects did not rely on manat as a payment and savings facility.

Another factor, that had a negative effect on the stability of manat, was that it was in circulation from August 1992 through January 1994 as a legal tender in parallel with rouble at a ratio of 1 manat to 10 roubles. From this standpoint, the Central Bank de-facto had no chance to pursue an independent monetary policy.

The situation radically changed upon return of the National leader Heydar Aliyev to power. His resolute decisions yielded socio-political stability which laid the foundation of the economic formation.

Manat was to be made a sole legal tender throughout the country to enable the Central Bank to pursue an independent monetary policy. The Decree by Heydar Aliyev, the National leader, dated 11 December 1993 on Announcing the National Currency of the Republic of Azerbaijan the Sole Legal Tender throughout the Republic played a critical role to that end. This Decree specified manat the only legal tender in circulation which ensured a way-out of Azerbaijan from the rouble zone. The Central Bank had the opportunity to implement independent monetary and exchange rate policies; this policy made a critical contribution to the country economy; macroeconomic stability started to be maintained and the exchange rate of manat against hard currencies stabilized.

Nowadays manat, that rests upon robust economic bearings, particularly, sustainable foreign exchange reserves, and absolute macroeconomic management, remains stable. It is not a mere coincidence that manat remained stable against the 1998 Asian crisis, the 2008 – 2009 global financial crisis. Our Honourable President Mr Ilham Aliyev said of the recent global financial crisis: “Currencies of the CIS countries devaluated in most cases. Since economies failed to resist the crisis and devaluation of national currencies somehow occurred at the expense of the welfare of people. Despite the crisis, we succeeded in maintaining stability of manat in Azerbaijan. We faced certain economic hardships, but we were striving to resolve social issues in the first place. We could not allow the crisis to show up in daily lives of people.”

Denomination of manat in 2006

The hyperinflation, resulted from the deep socio-economic crises of the first years of independence, caused a high price scale and a low nominal exchange rate of manat. Most prices were already marked with four – five digit values.

Ongoing economic reforms, that are being conducted on the way to building of the statehood, founded by the National leader Heydar Aliyev and continued by President of the Republic of Azerbaijan Mr Ilham Aliyev, the proper economic policy, as well as the monetary and exchange rate policies resulted in a sustainable macroeconomic stability and the high growth rate created favorable environment to denominate manat. In parallel, an acceptable level of inflation, stability of manat against hard currencies and its internal convertibility and considerably improved standards of life of the population also factored in denomination.

The international practice shows that the national currency, that lost its nominal value during inflation and devaluation, needs to be denominated during ongoing economic stability. Accordingly, President of the Republic of Azerbaijan Mr Ilham Aliyev signed a Decree on Changes to Nominal Value of Currencies and Prices Scale in the Republic of Azerbaijan on 7 February 2005.

According to the Decree, from 1 January 2006 manat was denominated, 1 new manat being equal to 5.000 old manat. 6 banknotes (1, 5, 10, 20, 50, 100 manat) and 6 gapiks (1, 3, 5, 10, 20, 50 q?pik) with the new nominal structure were released to circulation. AZM remained in circulation in parallel with AZN over a year – in 2006 and from 1 January 2007 the country economy switched over to the new manat.

During denomination new generation currencies were issued to circulation which enabled to shape the exchange rate of manat in line with exchange rates of leading world currencies, align the design, protection and nominal structure of the national currency to international standards, optimize the exchange rate and the price scale and simplify the accounting and settlement systems. Moreover, transition to the currencies of the new generation ensured more vivid expression of national and historical traditions on banknotes, improvement of cash circulation in the country, as well as saving of public expenditures related to production, transportation, storage and processing of cash.

The new generation banknotes of Azerbaijan have a four-pillar protection system combined of new and traditional technologies. The new generation banknotes and coins are designed on the basis of a unified concept. “Independent Azerbaijan” has been set to be the design subject of the new currency, which displays independence, development and European integration of Azerbaijan in all sectors. Yet, in the first years of independence, owing to insufficient relevant experience, the design and protection elements of produced banknotes failed to meet modern standards. Because old generation currencies were developed without a unified concept early in 1990s, they were on a plain artistical-aesthetic level and had the weak currency status due to a high price scale.

Honorable President Mr Ilham Aliyev highly appreciated the denomination and named the issue of currencies, that meet high international standards, to circulation of the key recent national projects. President highlighted: “Manat has a very nice design. It displays the culture, history, past, today and future of Azerbaijan. Hopefully, this manat will serve the Azerbaijani people and citizens for many years, tens of years, our country will become richer and the Azerbaijani economy will further develop.”

Over the past 20 years the Central Bank of the Republic of Azerbaijan has adopted an appropriate policy on issue of commemorative and anniversary coins of various denominations with a modern design, dedicated to prominent persons, socio-political and historical processes of the country on 13 themes.

Over these years the CBA developed and issued to circulation commemorative coins dedicated to the 85th anniversary of Heydar Aliyev, the National Leader of Azerbaijan, men of literature and art of Azerbaijan, the 20 year anniversary of restoration of the state independence of the Republic of Azerbaijan, the 135th anniversary of the National press etc.

Organization of cash circulation and modernization of its management

The recent economic growth and modernization strategy implemented under the leadership of Mr Ilham Aliyev, President of the Republic of Azerbaijan has considerably improved standards of life and social welfare of the population, and the country stepped to the group of medium income countries. Currently, the national economy has modern socio-economic and physical infrastructure, a high employment level and international competitiveness.

The CBA successfully realizing its mandate actively contributed to the economic growth strategy of the government. The Bank reliably maintains macroeconomic and financial stability and ensures development of the banking and payment systems through its targeted performance.

The CBA successfully implements other public value added functions, comprehensively meets the demand for cash and effectively manages cash circulation.

The dynamic growth of the Azerbaijani economy, as well as banking and payment systems, has resulted in high reliance on the national currency, and its transition to an attractive currency on a regional scale. Azerbaijani manat has become the most sustainable and reliable currency in the region, which strengthened its payment and savings function.

Over the past 10 years the dollarization in the country has considerably gone down, while the share of deposits in manat doubled.

Over the past 20 years the CBA has conducted a number of institutional reforms on organization of cash circulation, management systems have been modernized and upgraded.

Thus, the legal and institutional base of cash management has been aligned to best practices. We have created modern treasury infrastructure that meets high security standards, the level of automation has been improved and business processes are in line with international standards. Also, regional management systems have been optimized in concert with the international practice and the Bank has established Regional and Reserve Centers that meet modern standards.

Along with meeting the demand for cash, the CBA has declared the Clean Money in Circulaiton policy and ensured high quality of the currency in circulation.

However, at the same time, the CBA is determined to be among the most advanced countries through permanent modernization and possession of more effective governance systems on all areas of the Bank.

Targets of the CBA’s cash strategy

Recent high economic growth in the country, rapid boost of the financial system, changing and compex global economic environment triggered new institutional development challenges. In order to effectively address the new challenges, the CBA has prioritized a number of strategic activities.

One of the key targets of the CBA is to form the most up-to-date standards of cash management.

The Bank is planning to form a new cash management system in line with best practices and launch fully automated modern treasury infrastructure within this framework.

The CBA has started the realization of a number of projects on launch of the fully automated Cash Center based upon hi-tech, creation of cash management systems, institutions on modern design, logistics and expertise of currencies, as well as a new reporting system and economic analysis base.

The Bank has started the implementation of an appropriate project on development of the design and protection philosophy of banknotes of the new generation to maintain a high level of reliability and attractiveness of the national currency.

The CBA is dynamically managing all activity directions, the cash circulation is being improved in line with the new challenges; the strategic target of future development of cash operations is to ensure more effective, qualitative, safe, timely and efficient satisfaction of the demand of the country economy for cash through the management and fully automated systems that are aligned to the progressive international practice.

The CBA will realize the strategic challenge of President Mr Ilham Aliyev – “I am sure that manat will – as a strong currency – contribute to the Azerbaijani economy and the solution of social issues.”