Page 84 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.77, # 1, 2020, pp. 84-91

EXCHANGE RATE STABILITY AND THE DEVELOPMENT OF
FINANCIAL SYSTEM IN AZERBAIJAN

Fakhri Mammadov

MBA in Finance at University of Miami, BS in International Economic Relations,
Teacher, Azerbaijan State University of Economics (UNEC), Istiqlaliyyat 6, Baku
Mobile tel: (+994 50) 3671282, e-mail: mammadov.fakhri@gmail.com

Received 20 December 2019; accepted 22 April 2020; published online 10 July 2020

ABSTRACT:
The research paper shows how exchange rate and stability in financial markets can
revive economy, entrepreneurship. Azerbaijan used to have a fixed exchange rate policy
and Azeri manat was pegged to US dollar. During low oil returns, The Central Bank of
Azerbaijan (CBAR) tried to ensure financial stability and started to use reserves as it did
in 2008.In 2008 low prices for oil lasted for 6 months but starting from 2014 low oil
prices continues for almost 4 years. This study also identifies fundamental and
temporary factors which determine the exchange rates, also evaluates how and in which
ways state regulate the exchange rates. As an exchange rate of Azerbaijan mostly
depends on oil prices the drop in oil prices caused devaluation in the country. The
research paper will identify and discuss monetary policies that state used to respond the
devaluation and to see how these policies were successful. The final part of the research
evaluates the transferring to floating exchange rate and reveals the currents situation in
the market. The transferring process is not over and CBAR has a lot of problems to
solve till 2020. Although CBAR tried to establish free-floating exchange system, the
economy was not ready for such sharp changes.

Key words: Exchange rate of manat, Financial system in Azerbaijan, Exchange rate
regulation, Devaluation, Low oil prices.

Jel classification: E43, G12

FUNDAMENTAL FACTORS AFFECTING EXCHANGE RATE
There is an existing assumption that the effects of both temporary and fundamental
factors over the following global and domestic economic developments will
formulate the manat’s exchange rate in the next years.

1. The price of oil - According to the research done by the global energy markets,
the price of oil will be more than what level the Azerbaijan government predicted in
further year’s state budget (45$ USD/barrel) Global oil prices will be formulated
based on the results of important world trends, events:

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