Banks, lenders and currency exchange kiosks in Azerbaijan have started restricting foreign currency sales - U.S. dollars in particular - as the Azerbaijani manat continues to lose ground due to fears of further devaluation and declining oil prices.
The manat took a big nosedive on December 20, 2015, when the central bank decided to remove its dollar peg. The Azerbaijani currency dropped close to 32 percent that day to 1.55, and the manat has continued to drop against the dollar thru 2016. The USD/AZN closed today at 1.66436 - an all-time high.
The horrible performance of the manat has sent Azerbaijani merchants and investors into foreign currencies en masse, causing a severe dollar shortage in the region. Earlier this year, the central bank tried to fight the shortage by imposing a limit on the amount of dollars banks could sell to their clients on a daily basis, which was set at $500.
But as Reuters reports today, out of six banks interviewed; three banks in the capital city of Baku have suspended foreign currency transaction altogether; three banks only allow $100 a day per client.
The caps have also created a thriving black market, where the USD/AZN trades close to 2.
Some Baku merchants like Akif Shukyurov - who regularly converts his manat denominated revenues to dollars in order to pay his suppliers - tells Reuters that he can’t complete his transactions due to the extreme dollar shortage in the country.
The biggest supplier of dollars in the region is the sovereign wealth fund, Sofaz, which holds auctions twice a week, where $50 million is disbursed to banks. But the demand for dollars towards the end of August was close to $750 million, according to a Marja.az, a financial news outlet in Baku.
Just like the inadequate and ineffective attempts by the Nigerian central bank to remedy the dollar shortage in Nigeria, the policies of the Azerbaijani central bank have also failed, despite multiple interest rate hikes this year.
Financial regulators have attributed the growing demand for dollars to seasonal trends, saying that demand is driven up at the end of the summer as merchants need to make foreign currency payments.
Rufat Abbasov, an aide to the head of the Financial Markets Supervisory Authority, explained to Bloomberg in an interview:
“We were expecting this to happen because economic activity intensifies at the end of summer and the beginning of autumn. This is the time when many companies make payments to their foreign partners.”