Economist sounds alarm - Unofficial money supply is dangerous for national currency

12:14 - 24.12.2019


December 24, Fineko/abc.az. Expert economist Samir Aliyev reacted to the transition to floating exchange rate after a long period of time.

In his comments on the matter the expert touched upon a number of important points, as well as gave some useful information.

ABC.AZ reports that Samir Aliyev pointed out that although some experts consider the transition to floating regime impossible under the current conditions, there are those who do not share this opinion.

"I also agree with the first group of experts and believe that the transition to floating exchange rate under the current conditions is both impossible and impractical," underlined Aliyev, explaining this with several points: "First, the country's economy is not diversified and depends on one source - oil revenues. 90-95% of exports, more than 60% of the budget, up to half of GDP depends on oil. This means that the change in oil prices on world markets will directly affect the exchange rate of the national currency, and the volatility of the exchange rate will increase.

That is, in a certain period it will rise in price and in another period will fall in price. And an unstable exchange rate is dangerous for macroeconomic stability. The second main reason is the presence of an informal money supply in circulation because of the high shadow economy in the country. Any change in the exchange rate can lead to the flow of these funds to the foreign exchange market and speculation. The informal money supply also causes an informal flow of currency out of the country. And this is dangerous for the national currency. The third reason is the high dependence of the country's economy on imports. Precisely for this reason the change in the exchange rate causes high inflation within the country.

In such a situation the decline of the national currency does not have serious impact on the competitiveness of local production, as raw materials become more expensive as the impact of the devaluation decision on local production from abroad. You can also increase the number of factors. For example, the limited currency channels directed to the country, the currency and stock market, the high level of dollarization, etc."

By Elmir Murad

 

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