Analysts Wary Over Issuance Of 200 Manat Banknote, Says Inflation Possible

Analysts Wary Over Issuance Of 200 Manat Banknote, Says Inflation Possible

Analysts say inflation of manat could come as a result of the new large denomination’s injection into circulation

Money is about to grow in Azerbaijan. Alim Guliyev, first Deputy Chairman at the Central Bank of Azerbaijan announced on Tuesday that it may introduce banknotes in denominations of 200 AZN, or roughly USD $118.

“Banknotes worth, for example, 500 manats would be too big for us, but the issue of banknotes worth 200 manats is quite possible,” Guliyev told Trend news agency on Tuesday.

The manat is Azerbaijan’s national currency, and is currently issued in banknotes consisting of six denominations: 1, 5, 10, 20, 50 and 100 AZN. A 200 manat note would be the largest to go into circulation since the national currency was restructured in 2006.

The Azerbaijani manat uses the symbol ₼ and is subdivided into 100 qəpik, similar to how one US dollar, which uses $ as its symbol, is divided into 100 cents. The Central Bank of Azerbaijan mints coins in denominations of 1, 3, 5, 10, 20 and 50 qəpik.
Some analysts are worried about the possible change, however, believing that a higher denomination going into circulation could devalue the currency.

“The European Union applies 200 and 500 euro banknotes because there is a need for such bills, as the euro’s share of global reserve currency accounts for 25 percent,” Vugar Bayramov, chairman of the Baku-based think tank Center for Economic and Social Development, told Caspian News.

But, he added, “large denominations usually accelerate a currency’s inflation.”

“If there is inflation, prices will increase and the manat’s purchasing power decreases,” Bayramov said. “Maybe in the future introducing a new and higher banknote will be necessary. But at the moment, we’re not supporting this decision.” In Azerbaijan, the US dollar comprises 70 percent of deposits, and around 90 percent of people’s money is in dollars, according to statistics provided by the Central Bank.

The manat was first used in Azerbaijan during its brief period as the Azerbaijan Democratic Republic, which had been freed from imperial Russian rule in 1918. Introduced in 1919, what is termed the “first manat” underwent systematic changes due to political forces, including the takeover of Azerbaijan by Soviet Bolsheviks by April of 1920.

By 1923, the manat was annulled, as Moscow introduced the Soviet ruble and used throughout the lifespan of the Azerbaijan Soviet Socialist Republic. In 1992, after the collapse of the USSR, Azerbaijan once more gained sovereignty and restored its national currency, replacing the Soviet currency at the rate of 10 rubles to one manat.

This “second manat” lasted until 2006. On February 7, 2005, President Ilham Aliyev authorized the creation of the “third manat” due to inflationary pressures as a result of the currency having increased in value against the US dollar. Some experts attribute Azerbaijan’s increase in oil production and export to foreign markets as the result of inflation, together with the generally high price of oil on the world market at that time. (By the end of 2005, one US dollar was worth 4,591 manat, and banknotes below 100 manat had effectively disappeared.)

The “third manat,” or the Azerbaijani New Manat and abbreviated AZN, went into circulation on January 1, 2006 and remained in parallel with the second manat for exactly one year, so users could make a smooth transition to the new currency.

Caspian News

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