BANKING FOR CENTURIES

One hundred years ago, just a few months after the declaration of the first democratic republic in the Muslim world, the Azerbaijan State Bank (Central Bank) began operations. The Bank of Banks was responsible for controlling credit institutions and issuing currency. The opening ceremony of the Central Bank of independent Azerbaijan took place on September 30, 1919. The ribbon cut at the entrance to the building is still stored in the state archive. With the same respect, Azerbaijan continues to honour the foundations and the main principles of central banking laid down more than a century ago.

Although the local banking system and central banking functions were completely subordinate to Moscow for many years of Soviet power in Azerbaijan, after the second gain of independence, Azerbaijan could finally create the necessary legal and institutional framework for its National Bank (the name of the Central Bank until 2009) from scratch in a short period of time. Ten years ago, the bank was renamed to the Central Bank of Azerbaijan (CBA).

However, not only the name of Azerbaijan's main bank has changed over the years. Its main functions have been revised too. Today the bank is focused on the implementation of monetary and foreign exchange policies supporting macroeconomic and financial stability in the country. In addition, CBA is responsible for stability in the foreign exchange market so that the rate of Azerbaijan's national currency remains beneficial for population and entrepreneurs, and generally for the organization of money circulation.

Today, the Central Bank is one of the country's main institutions implementing macroeconomic policies, which makes important decisions regarding monetary and financial stability.

The most important tool to ensure this is Azerbaijan's foreign exchange reserves. Some of them are also concentrated in the Central Bank, which manages them ensuring stable growth. This figure almost reaches $7 billion, which indicates an increase in reserves although the Central Bank periodically had to sacrifice a significant part of its reserves to maintain the manat's rate or to regulate inflationary processes.

Currently, the Central Bank seeks to maintain an acceptable level of inflation in close cooperation with other macroeconomic regulatory authorities. As part of this work, the bank continues to provide macroeconomic stability and critical support to financial stability and economic growth, flexibly adjusting its policy.

CBA plans to switch to a hybrid inflation targeting regime for 3-5 years. At the same time, the bank will rely both on operational targets with regard to discount rates and on a stable market indicator of the exchange rate of manat. This step can lay the foundation for full inflation targeting in the future. Thus, CBA seeks to use more modern tools for managing the monetary market and to gradually reduce both real and psychological dependence on the exchange rate.

Another mandated function of the CBA is the development of cashless payments in Azerbaijan. Today the necessary operational and institutional base for implementing this system is regularly updated in line with the innovations of world markets.

As part of the State Program on the Expansion of Digital Payments in 2018–2020, the CBA is creating an instant payment system and a digital identification system based on blockchain. The launch of the interbank card centre, the coordinating component ofAzerbaijan's card infrastructure, has reduced the dependence of the card network on international organisations. At the same time, CBA admits that the establishment of a cash-free economy does not happen overnight and must be tolerated until the implemented measures yield results.

Large-scale reforms on the development of cashless payments and the establishment of a cashless society do not yet make it possible to exclude cash transactions completely. On the contrary, international practice shows that non-cash payment systems are developing in parallel with certain growth rates of cash transactions, which requires constant optimisation at central banks and the effectiveness of cash management.

Central Bank of Azerbaijan has a very serious approach to the cash money supply in circulation. Unfortunately, few people know that the Azerbaijani manat today is among the leaders in terms of design and security among world banknotes.

CBA attaches great importance to the effective fight against counterfeiting. It has a special laboratory equipped with high-tech systems and equipment for this purpose. This “system of examination and identification of money” makes it possible to share information with commercial banks and government agencies. At the same time, CBA pays special attention to ensuring that the money in circulation is neat and tidy, because manat is one of the attributes of statehood, and the attitude towards it should be appropriate.

The fundamental research conducted by CBA make it possible to quickly evaluate macro- and microdevelopments, provide a decision-making process related to monetary and financial stability. CBA is expanding close ties with international research institutes and central banks of leading countries.

The Bank has formed a modern organizational structure, decision-making procedures and the necessary business processes in all areas of activity.

So, over the years of independence, the Central Bank of Azerbaijan has become a macroeconomic institution with a well-balanced and rich experience in solving complex problems. Despite the fundamental and traditional management system, the CBA always tries to modernise and maintain its place among the leading central banks of the world.