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Azerbaijan not to snub US dollar

19 December 2014 12:41 (UTC+04:00)
Azerbaijan not to snub US dollar

By Gulgiz Dadashova

Azerbaijan is not going to leave out the U.S. dollar from its regional trade relying on its independent economic policy.

Rufat Guliyev, Member of the Parliamentary Committee on Economic Policy, made the remark while commenting on the decision of Kazakhstan and China to dispense with the dollar for regional trade and instead use national currencies.

"Both China and Kazakhstan are seeking to avoid the dictates of the U.S. dollar. Maybe it is a politically motivated move, because I don’t see other reasons behind it. But, in any case, in the near future, other countries will try as much as possible to leave out dollar. The first countries would be members of the BRICS (Brazil, Russia, India, China and South Africa)," Guliyev told Trend.

Brazil and Uruguay have already decided to shift bilateral trade to local currency to stimulate turnover, bypassing the U.S. dollar. If the new mechanism proves to be successful, it can be further expanded to other countries such as Paraguay, Bolivia, or Venezuela, RT reports.

The Eurasian Economic Union (EEU) which includes Belarus and Kazakhstan is also planning to create a single market for financial services by 2025 which will simplify switching to dollar-free trading. Earlier this week, the Russian State Duma proposed the creation of a single area for payment in national currencies.

China and Kazakhstan will not be able to shift their trade from the U.S. dollar, according to Guliyev. "China is now buying gold at a frantic pace and seeks to be the biggest gold holder in the world. The current trend proves it. It is possible that in the near future all the gold rotations will be mainly carried out through China. They will strongly accumulate their gold reserves. At the same time, the national currencies of China and Kazakhstan are unstable. Recently the tenge underwent devaluation. That is why they are unlikely to succeed in their efforts to leave out the U.S. dollar, as a dictating currency. Today, within the global financial system, 70 percent of transactions are made in the U.S. dollar, 29 percent in euros and 1 per cent in other currencies, including the ruble, yuan, etc. Both currency [tenge and yuan] are converted. What will be the basis for the conversion of their currencies? How they would approach complex special mechanisms of currency conversion? It is not yet clear. It will take some times, so I think that these measures are preventive in nature,” he said.

China has a strong economy demonstrating an incredible pace of development and it aims to become the number one economy in the world. Kazakhstan, in turn, enjoys bright economic prospects but follows the footsteps of Russia from a political point of view.

He believes that the decision is mainly political rather than economic.

"China's position is quite reasonable, since it is a powerful economy and in many ways it is already ahead of the U.S. economy. An important factor is that China owns more than 23 percent of the U.S. government bonds. On the other hand, the United States - is the largest market in the world for China. This is quite a promising direction. Moreover, China is actually the world's third largest center of political power. Kazakhstan has its own "emergency landing". The country is a member of the Customs Union, so all have to negotiate with Russia, which, despite the economic difficulties, continues to be a strong political center,” Guliyev said.

The official once again said that Azerbaijani government has no decision to abandon the dollar in the near future. "Azerbaijan pursues an independent policy defying economic pressure. We will not make such harsh statements or demarches. In addition, the manat is the most stable currency in the post-socialist space and such steps are not necessary,” Guliyev said.

Azerbaijan's currency, the manat, is currently the most stable and reliable currency in the region and enjoys high public interest. A number of leading central banks take interest in the manat as a reserve currency, and the manat is widely used in cross-border trade.

President of the Central Bank of Azerbaijan Elman Rustamov said recent currently the rate of the manat is completely stable. "The manat presents itself as a very strong regional currency. Different states use it in trade with various countries. We believe that by late 2015 and beyond that the stability of the national currency will be ensured," he said in early November.

Azerbaijan, which gives priority to foreign exchange reserves rather than gold reserves, keeps the reserves mainly in the U.S. dollar as it receives energy revenues in the U.S. dollar. But the country with $54 billion foreign exchange reserves also seeks diversification.

The CBA has recently announced that some $500 million will be invested in the Chinese market directly and more $500 million in other Asian markets. Thus, the CBA aims to diversify its financial tools and the geographic structure of reserves in current global economic environment.

Expert Samir Aliyev hailed this step of the CBA, saying several countries have already started to seriously think about the inclusion of the Chinese currency - the yuan into its foreign exchange reserves.

"Azerbaijan should also think seriously about it. Currently, about 5 percent of foreign exchange reserves of the country can be kept in the yuan. This step seems quite appropriate in view of the diversification of foreign exchange reserves,” he noted.

Moreover, he believes, over time the Chinese currency will become even more attractive to investors. "To date, the main problem of the Chinese currency is that it is not freely convertible. It is regulated by the Chinese authorities, who want to reduce the rate of its currency to boost its export. But lately, the Chinese authorities think about another currency to float freely. In this case, the investment attractiveness of the yuan will rise,” Aliyev said.

Meanwhile, several local media and social networks reported that there is a shortage of U.S. dollars in the country due to the sharp depreciation of the Russian ruble. The public is also worried about the possible depreciation of the manat after the holidays. However, as the CBA assured, there are no limits and restrictions in the foreign exchange market in Azerbaijan, and domestic banks have sufficient amounts of different currencies to meet the needs of the market without any restrictions.

For a possible increase in the dollar and the depreciation of the national currency, the Bank assured that the rate of the manat is stable and there is no reason to macroeconomic destabilization.

“The CBA has all options to maintain the stability of the manat. Just the CBA reserves are sufficient to fully cover the manat monetary base. A significant amount of foreign exchange reserves allows the bank to quickly affect the currency market,” the report reads.


Follow Gulgiz Dadashova on Twitter: @GulgizD

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