Page 90 - Azerbaijan State University of Economics

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

to $7299,10. SOFAZ transfers as a percentage of state budget revenue was less than
previous year in 2015, and form 46,4% of the budget. (F.Mammadov 2017)

Even if Azerbaijan has officially switched to floating rate, in reality there are some
hindrances that prevent the effectiveness of floating rate. That’s why still certain
level of regulation of exchange rates exists.

The following facts can be highlighted:
 After two devaluations the population stopped believing to official statements of
the Monetary Authority about predictions of the manat. The result is that people
always prefer exchanging manat to US Dollars.
 The confidence in national currency is also weakens because of limited access to
real and publicly available data.
 Financial instability that emerged because of shutting down banks, increase in
foreign debt of banks, higher inflation rate and negative trade balance.
 The negative effect of illegal black currency market.

The deficiencies listed above cause the intervention of government to the exchange
rate in following ways:
During auctions SOFAZ is the only supplier of foreign currency, which means that it
dictates the market, which in turn implies the administrative power of the
government over the financial markets.
In order to decrease demand in dollar auctions the CBAR prevented the International
Bank of Azerbaijan (IBAR) from participation in auctions as it was the main player
among commercial banks.. So IBAR itself would get foreign currency directly from
CBAR.

CBAR started deposit auctions offering banks between 12-15% annual rate which
was aimed to collect extra manat from market which in result will decrease money
supply for a short term.

CONCLUSION
The monetary policy has successful and unsuccessful results for creating stabilization in
the exchange rate. What did country get as a result of successful policy? Reduction of
volume of manat that was in the circulation, increasing the profitability of national
currency, enhancing of confidence in national currency, bringing back all the deposits that
was withdrawn because of reduce in the confidence level in the AZN. Generally, it caused
the appreciation of manat. However, there are negative sides. When foreign illiquidity is
observed, illegal black market emerges. Population started to trade there and as a
conclusion the government policy is damaged. Government after the devaluation passed

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