TO REPLACE THE DOLLAR

Today the Azerbaijani manat is the most stable and reliable currency in the region. This recent statement by the country's chief banker - Central Bank Chairman Elman Rustamov - has a solid basis. For many years, the Azerbaijani currency has remained resistant to all types of crisis trends from the outside, internal inflationary processes and other negative factors. But an even more important achievement in this case is the fact that a number of major central banks in other countries are already showing interest in the manat, or rather in forming manat reserves for covering the costs in carrying out operations in that currency.

Transformation at the global level 

The world economy has been "ailing" for more than five years. Many countries devalue their currencies in order to support their economies and maintain social stability. Overall, however, this leads to the destabilization and destruction of the financial "structure", the fastening element of which is the US dollar.

The crisis of 2008 showed that relying on one single currency is at least irrational. That is why today, the search continues for a reserve currency that would be an alternative to the dollar (and in practice, to the euro too) in international trade settlements and other financial transactions. And this currency must suit everyone without exception. In March 2009, on the eve of the G20 summit such proposal was made by Russia, which reached an agreement with Belarus back in 2008 on mutual settlements in Russian roubles, which are certainly more powerful than Belarusian money.

Japan and China decided to abandon the US dollar in settlements - they agreed to promote the use of only the yen and the yuan. Iran and Russia also agreed to use their own currencies instead of the dollar in bilateral trade. In recent years, Iran itself has been consistently trying to replace the dollar with other currencies in trade with the outside world, for example, it switched to alternative currencies in oil trade with India, China and Japan. Also in early 2009, at the Turkish- Russian business forum in Moscow, Turkish President Abdullah Gul invited Russia to abandon the dollar and the euro and switch to the rouble and the Turkish lira in settlements. As a result, the Turkish bank Garanti began using the Russian rouble for mediation in import-export operations. This decision is more than justified: Russia and Turkey are major trading partners. In addition, Turkey is already trading with 188 countries, using the Turkish lira for mutual settlements.

Regional associations also periodically raise the issue of introducing reserve currencies. At one time, the need was noted for the mutual penetration of the banking systems of member countries of GUAM (Georgia, Ukraine, Azerbaijan and Moldova) by eliminating the use of currencies of third countries. With small amounts of trade between them, losses from the dollar's decline are not noticeable, but with the increase in the turnover one should think seriously about pegging goods to national currencies.

In short, a number of countries are promoting projects that accelerate the transformation of the world economy from the model where one or two global reserve currencies dominate into a model of many regional currencies and formation of regional technical zones. These countries (China, Russia, Turkey, etc.) form currency areas, honing them, so to speak, for themselves.

Today, the practice of exchanging national currencies between central banks is widely developing in the world. This tool is called a currency swap. Actions of central banks in this field - we are talking about dozens of countries - allow companies and banks to adapt in specific protected environments to the new reality that is emerging in the world. "Creating a new global reserve currency in the short-term is impossible," the head of the Baku Interbank Currency Exchange (BBVB), Farhad Amirbayov, believes. "The overall objective is to support the development of one's own economy by increasing the area of trade, markets and, where possible, reducing competition."

Thus, the creation of a regional monetary zone is intended to solve the following urgent tasks: to reduce dependence on "ailing" world reserve currencies; and to support the marketing of goods and services through the creation of such a zone in which the national currency is dominant.

Some neighbours of Azerbaijan - Turkey and Russia - are hatching ambitious political and economic plans. In this regard, Azerbaijan is in a very interesting situation, as the two countries are strategic partners of Baku, and they consistently build their financial centres. Russia has already united the Moscow Interbank Currency Exchange and the Russian Commodity Exchange into a single Moscow stock exchange. This year, Turkey also established a single Istanbul Stock Exchange on the basis of several specialized exchanges - the Istanbul Stock Exchange, the Izmir Derivatives Exchange and the Istanbul Gold Exchange.

Preparations for the establishment of the TL zone (Turkish lira), which will affect the settlements in trading operations at the initial stage, was stated by Turkish Prime Minister Recep Tayyip Erdogan. According to Amirbayov, Turkey is preparing the ground for the creation of its own technology area in which the Turkish lira will be playing the role of a dominant reserve currency. And the use of the Turkish lira as a means of payment will relieve local manufacturers and financial institutions from the rising currency risks.

Well-earned interest 

Amid all this, is the transformation of the manat into an international reserve currency real? In the long-term it is possible. But to start with, the manat has to become a regional currency, Azerbaijan's neighbours - Turkey, Russia, Georgia and Iran - must agree to use the manat in international payments.

Azerbaijan, keeping its own currency and strengthening and enlarging its financial institutions, can work very effectively in different currency areas simultaneously. Back in 2007, information was announced that Azerbaijan is ready to make settlements with other countries in manats. The current situation does not require immediate decisions from the country, but is already making us think about the future.

Every country that sees its currency as a regional currency will, of course, try to make trade within its currency area very attractive. And Azerbaijan has a chance of taking these factors into account while building its new non-oil economy.

At present, the central banks of regional countries are known to keep the required amount of manat masses in order to simplify operations for cross-border trade. Currently, the demand for the manat is growing on certain money markets of these countries, and although in small amounts, the Azerbaijani currency has already won a niche in their foreign exchange portfolio in the form of cash. For example, now a sufficient amount of manat masses is collecting in Georgia - many Azerbaijanis go there with their manat savings to purchase vehicles and equipment.

Besides Georgia, the Azerbaijani currency is also used in cross-border trade - Astara-Julfa (Iran), Qusar-Derbent (Russia), and with the opening of the Baku-Tbilisi-Kars railway line it is possible that the manat will be used in Turkey too.

In addition, the vice-chairman of the Central Bank board, Xaqani Abdullayev, says that some Asian countries have also become interested in the Azerbaijani manat as the currency for mutual settlements. For the time being, this is just an idea, as its implementation requires preparatory work. The deputy chairman of the Central Bank believes that this prospect should not be treated as a merely technical issue and should be considered at the global level.

According to the head of the Association of Banks of Azerbaijan, Eldar Ismayilov, the manat itself made its way to neighbouring countries. Behind it is a powerful and dynamic economy with foreign gold and currency reserves of 49.4bn dollars, which accounts for 70% of GDP and makes it possible to fully meet the needs of the economy for imports in the full absence of exports for five years. We should also note that in order to prevent the excessive appreciation of the national currency against the background of ongoing turbulence on global financial markets, in 2013 the Central Bank of Azerbaijan (CBA) sterilized the currency in the amount of 1.7bn dollars. As a result, the foreign exchange reserves of the Central Bank increased by 16.2 % - to 13.6bn dollars - in 10 months.

The chairman of the Central Bank, Elman Rustamov, said that thanks to the preservation of the national currency at a stable level, the use of the manat as a means of payment in cross-border trade is expanding.

Therefore, with growing trade and economic relations with neighbouring countries, the possible use of the manat, which proved to be stable in comparison with other currencies of the region and no less stable than the dollar and the euro, will increase. 

At the same time, we should emphasize that Azerbaijan has never aimed to make the manat a reserve currency and spread it around the world, which is the policy of the US government and the eurozone. And that makes today's interest in the manat dearer and more prestigious.