THERE IS NEVER TOO MUCH MONEY

One of the major achievements of Azerbaijan's economic policy in recent years has been the strengthening of the national currency, its stability and the increasing importance of the manat not only in the country but also in the region. That is to say in the global financial sense monetary processes in the country today are largely shielded from external factors, which cannot be said about the physical side of the national banknotes - sometimes people are dissatisfied with their rapid wear, speak about the need to issue banknotes and coins of new denominations and risks associated with counterfeiting, although the Central Bank says that those issues are kept under control and problems are resolved quickly.

Monetary old age

The level of counterfeiting in Azerbaijan is much lower than the global average. If in developed countries, particularly in Europe, there is one fake banknote for every 20,000 in circulation, in Azerbaijan, there is one fake banknote for every 250,000. Thus, in the first half of 2013, the Central Bank withdrew more than 600 counterfeit notes from the market and handed them over for destruction.

However, according to the deputy director of the CBA cash office, Hacibaba Masimov, in Azerbaijan there is a dangerous trend towards growth. "But counterfeiters are using methods and equipment of very low quality. Often, they just photocopy notes. Therefore it is not difficult to detect fake money," Masimov says. In this case, since counterfeiting is a punishable offence, the process of preventing it involves the law enforcement agencies, which makes it possible to keep the situation under control with joint efforts.

Another threat to the "image" of national banknotes is their rapid wear. Under the existing law, banks should accept warped and worn banknotes and exchange them for new ones. They are supposed to accept banknotes, over 60% of whose surface is preserved, and notes that consist of several pieces, but form 100% of the surface together. Counterfeit money is not accepted, of course.

By the way, worn notes can be presented to the CBA. "The Central Bank accepts deformed and worn bills in exchange for new ones from the public. On average, the CBA withdraws 10-20% of cash per year. This is a normal world average indicator," Masimov said.

Also, the total statistics of worn banknotes are affected by the fact that a heavy burden lies on one- and five-manat banknotes. Their lifespan is 1.5-2 years, which is due to more frequent use.

The sound of coins

Should we withdraw the most common one-manat banknote from circulation in the country and introduce a coin of the same denomination instead? The Central Bank has been considering this issue for several years. In 2007, after the completion of the redenomination only the new bills have been used as a means of payment: 6 metal coins (in denominations of 1, 3, 5, 10, 20 and 50 qapiks) and 6 banknotes (1, 5, 10, 20, 50 and 100 manats), although, in accordance with international practice, 7-8 banknotes and the same number of coins can be released into circulation.

With economic growth and rising living standards, it gradually becomes necessary to withdraw coins of low denominations from circulation and issue coins of large denominations. For example, in Europe there are one- and two-euro metal coins, in Switzerland - and one- and five-franc coins. However, the Central Bank of Azerbaijan is in no hurry to take this step. The regulator names the factors that make this innovation impractical.

Thus, according to Masimov, it can create logistical problems - difficulties with the collection and transportation of a large number of coins. "The release of the new coins increases the risk of counterfeiting, as by the degree of protection coins are much more vulnerable to counterfeiting than banknotes. In addition, due to their low cost, the population does not hand over false coins and they continue to be in circulation," Masimov says. For example, in Europe, the number of counterfeit coins in denominations of one and two euros is increasing, which creates some problems for the economy.

According to the Central Bank, another important factor is difficulties that may arise in social payments. If you introduce a coin with a denomination of one manat, then, for example, senior citizens will not be able to withdraw the entire amount of their pensions from the ATM until it reaches five or ten manats (ATMs, as we know, do not issue coins). This amount, of course, will remain in the account, however, given the sensitivity of this category of the population to such phenomena, such a solution is not a simple one.

In addition, the Central Bank considers the parallel circulation of one-manat coins and banknotes to be unlikely, referring to international experience, which shows that in this case, people will tend to use paper money more, which will drastically reduce the demand for coins.

New banknotes

But at the same time all of these risks do not mean that the issue of coins and banknotes of new denominations is completely removed from the agenda. On the contrary, the Central Bank claims that such plans exist, but have been postponed until a certain time. This also applies to the issue of notes of large denominations.

Thus, in recent years the proportion of notes with a large denomination (50 and 100 manat) in circulation has increased significantly, which was great financial stress for the state. It must be remembered that in order to change the structure of money supply, from 1 February 2013 the Central Bank decided to impose on commercial banks a commission of 0.3% for each banknote with a denomination of 100 manats they issue. The fact is that over the past 7 years, according to the Central Bank, the share of 100-manat banknotes in circulation increased to 75%, which is much higher than the international practice. The CBA noted that the end result of this decision was to increase the efficiency of cash transactions, optimize the nominal structure of currency, reduce the use of cash and promote the use of cashless payment systems. "This move will reduce the share of 100-manat banknotes in circulation, which will optimize the structure of cash in circulation," the Central Bank said.

It should be recognized that the decision showed its effectiveness fast enough. If before 100-manat banknotes supplanted other bills, now their market share has decreased due to the growth in the share of banknotes of smaller denominations. Metal coins have also increased their share. "Thus, the idea of banknotes in denominations of 200 and 500 manats has slightly lost its relevance for the moment," said Hacibaba Masimov. Despite the fact that the Central Bank has postponed the process until after 2013, the offer still stands. According to the estimates of the Central Bank, the introduction of banknotes in denominations of 200 and 500 manats in the next five years will save up to 10 million euros.

In short, the reforms surrounding the Azerbaijani manat are still ongoing, although we may note that in a relatively short period of existence, it consolidated its positions as a stable and reliable currency with good chances of becoming regional currency.