Reply #70: AZERBAIJAN’S MANAT MAKEOVER: GOOD TIMES AHEAD?

[54anickel]

http://www.eurasianet.org/departments/business/articles/eav030106.shtml

It looks like a euro, it’s denominated like the dollar. Azerbaijan’s newly denominated banknotes and coins have been touted as a sign that the oil-rich state has finally come into its own as a regional economic heavyweight with a strong currency. But some observers worry that the government was too hasty in slashing zeroes off old banknotes. Without prior consideration of incoming oil revenues and ongoing economic reforms, the new bills could merely fuel inflation, they say.

To boost confidence in Azerbaijan’s currency, the government had first to tangle with the dollarization of the country’s economy. The old manats, known as AZM, encouraged a preference for dollars, noted independent economist Nazim Imanov. With the largest AZM banknote a mere 50,000 (a bit more than $10), people routinely used dollars for large purchases such as real estate and cars. "And it is understandable. To buy a car for $5,000, a customer would have to carry two suitcases filled with manats," Imanov commented.

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Under the new currency denomination, introduced on January 1, far fewer bills will be needed to make large purchases; one new manat, known as AZN, is equal to 5,000 AZM. When the transformation process is complete, there will be 1, 3, 5, 10, 20, and 50 gyapik (penny) coins and AZN 1, 5, 10, 20, 50, and 100 banknotes.

Arif Babayev, owner of a popular Baku café, agrees that the new denomination will boost confidence in the manat, and notes that private banks now offer slightly higher interest rates for manat-denominated accounts than dollar-denominated ones. "The manat is becoming stronger and if the government does not stop the process, the exchange rate will even increase. After the dollar crisis in October, savings in dollars seem risky to me," he said. .

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