Free Fixed and floating exchange rates. Positive and negative effects to Azerbaijan. Dissertation Example
Fixed and Floating Exchange Rates; Positive and Negative Effects to Azerbaijan
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Fixed and floating exchange rates; Positive and negative effects to Azerbaijan
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Dissertation authorship and originality“First of all, I would like to note that the work that has been presented in this dissertation have never been presented anywhere. It is my own work and has not been part of a submission for an award of a degree or any certification it has not been used anywhere else in any research. In case some ideas are from the original authors, they have been duly cited following the academic demands. Al the work that comes from the outside sources in this work has been cited as well as the authors given the expected credit”.
AcknowledgmentBefore I commence, I would like to thank God for his guidance and protection throughout the writing of this work. Secondly, I would like to pass my appreciation to my supervisor for showing me the way throughout the writing of this dissertation. You have been a massive part of this paper. Through your guidance, I have been able to put the content of this paper together as expected. Thank you also for the insightful comments about the topics that are surrounding this paper.
Also, I want to say thank you to those who helped with the editing of this dissertation. My appreciation also goes to my family, who have supported me through this dissertation. Lastly, I would like to acknowledge the school fraternity for the opportunity that they gave me to operate on this topic. Thank you for approving my work.
TABLE OF CONTENTS
TOC o “1-3” h z u Dissertation authorship and originality PAGEREF _Toc515269579 h 2Acknowledgment PAGEREF _Toc515269580 h 3Abstract PAGEREF _Toc515269581 h 5Introduction PAGEREF _Toc515269582 h 6The motivation for this study PAGEREF _Toc515269583 h 9Study objectives PAGEREF _Toc515269584 h 10Research questions PAGEREF _Toc515269585 h 10Research hypothesis PAGEREF _Toc515269586 h 11Literature review PAGEREF _Toc515269587 h 11Economic status of Azerbaijan PAGEREF _Toc515269588 h 11 Impacts of the fixed and floating rates PAGEREF _Toc515269589 h 14The current market situation PAGEREF _Toc515269590 h 14The value of Manat PAGEREF _Toc515269591 h 15Impacts on the oil prices PAGEREF _Toc515269592 h 17The fixed rates implementation and its impacts PAGEREF _Toc515269593 h 22Findings and Analysis PAGEREF _Toc515269594 h 24Positive impacts of fixed exchange rates to Azerbaijan PAGEREF _Toc515269595 h 24Negative impacts of fixed rates to Azerbaijan PAGEREF _Toc515269596 h 26Positive effects of floated exchange rates to Azerbaijan PAGEREF _Toc515269597 h 29Negative effects of Floated exchange rates to the economy of Azerbaijan PAGEREF _Toc515269598 h 33Conclusion PAGEREF _Toc515269599 h 34Recommendations PAGEREF _Toc515269600 h 36Ethical considerations PAGEREF _Toc515269601 h 38Anonymity PAGEREF _Toc515269602 h 38Time management PAGEREF _Toc515269603 h 38Credibility PAGEREF _Toc515269604 h 39References PAGEREF _Toc515269605 h 40
AbstractA fixed rate is a situation where the value of the country’s currency is pegged in relation to the foreign currencies. In such situations, the currency value neither drops nor increase in relation to the market. This value can be pegged on one currency or the other. Contrary to the fixed exchange rates, the floating exchange rates are flexible and changes in relation to the market and it depends on the foreign currencies. Whether a country uses the fixed or the floating exchange rates, there are numerous impacts that they have on the country. Azerbaijan, the exchange rates at the national level of currency, has been a subject to debate. The exchange rates have also been the main focus of the social policies and the impacts that they have on the country. For a long time now, these rates, there have been numerous impacts that have been felt by the people of Azerbaijan. The main aim of this paper is to examine some of the aim roles of different types of exchange rates on Azerbaijan and the impacts that they have on the country. As a country that had been operating in the pegged exchange rates, there was a time that the country changed its rates to floating rates. This paper analyses the situation to determine the positive and the negative impacts of each of the exchange rates.
Introduction An exchange rate refers to the value of the currency in a country based on the comparison with the other currencies from the other countries. The fixed exchange rates relates to the nominal currency rates that have been pegged by the monetary body of the country. They can also be presented by the foreign currencies. On the other hand, the floating types of exchange rates are determined by the country and are left for the market to decide on the rates. These rates largely depend on the demand and supply of the goods and services. The exchange rates usually fluctuate depending on the situation that have risen at hand (Londono, Saborowski, and Sapriza, 2017. p.191). the fixed rates are always associated with a massively reduced transaction expenses. In the fixed rates, the uncertainties in the market are limited. All the foreign investors and traders are aware of what to expect and the value of their money at the foreign land. This meant that they can plan prior to making a huge investment (Gagnon, Joseph, Tamim Bayoumi, Juan Londono, and Christian Saborowski, and Horacio Sapriza., 2017, p.36). The international trade unions as well as the international investments all depends on the rates that have been set by the countries so that they can have their say on the country’s income (Avdjiev, Bruno, Koch and Shin, 2018, p.45). The rates are also associated with a reduced number of international investors who are already aware of the rates that are used in the country. On the other hand, the fixed exchange rates have been proven to provide the best anchor for the low monetary values and policies based on the inflations (BIS, Bruno, and BIS, 2017, p.57). There are no cases of inflation as the rate is fixed and does not move depending on the demand in the country. For instance, the price of oil that can be imported in a country per litter remains that same (Obstfeld, 2015, p.353). Whether there is the high demand for the product, the rate will remain the same. The investors are not aware of such issues, and they do not expect the prices to increase or improve any time soon (Demirgüç-Kunt, Horváth, and Huizinga, 2017, p.343). it may mean that the investors have to take a decision and search for other market that are offering the best value for their money (Stocker, Baffes, and Wheeler, 2018, 24). In a country where the rates are fixed, most of the power lies within the central bank. It is the one that is supposed to make a decision based on the market behaviors (Avdjiev, Bruno, Koch and Shin, 2018, p.353). In such situations, the central bank is the main determinant on the market. The central bank has to intervene in many situations so that the market can keep the level upon to the standard s that have been set (Schnabl, 2008.p.70).
Importantly, the market have to adapt to the set rates by the bank. The market do not have the power over the rates in the country, the central bank are the main setters of the country operations. For official operations and the need to change the rates, it is the central bank that is in charge of the business operations. Hence, the use of the autonomous monetary policies have the main advantage when it comes to the policies that deals with the floating exchange rates. In case there is the slip in the economy in the country, or any form of recession, the autonomous policies take charge of the situation (Tenreyro, 2007. p.485). They are the ones that affect the central bank and enables them to boost the necessary demands in the country. The bank will therefore reduce the amount of money that floats onto the market and the demand for the liquid money will go higher. The other countries and the investors have to follow suit the actions of the central bank. This also smoothens the business operations and the business circle (Yeyati, Sturzenegger, and Reggio, 2010. p.659). There is also the issue about the economic shock. All the exchange rates, whether fixed or floating have an effect on the economy. The economic shock is a main issue for the economies that are affected by the exchange rates (Honig, 2009.p.198). An economic shock refers to events in the economy that are unpredictable. These events may have a positive or negative impacts on the economy. They are therefore changing the known operations in the economy. The positive economic shock can sometimes go unnoticed while the negative impacts are always noticed. In case there is a recession, it is because of the negative impacts of the economic shock (Harms and Kretschmann, 2009. p.139). The monetary policies have to allow the central bank to create the demands for money and consider the exchange rates. These two types of exchange rates have their advantages and their disadvantages when it comes to the functions and actions of the economy. In Azerbaijan, the impacts can be felt in both ways (Markiewicz, 2006.p.486). Also, the choice of the best system for regime and the wrong one depends on the status of the country (Fakhri, 2010. p.44 Tenreyro, 2007. p.485). There is no better one as they all have their weaknesses and their strengths. This is something that will always stand in terms of the economic debates. De Brock, and Sløk states that a country must have the freedom to choose whether they are settling for the fixed or the floating system (De Brock, and Sløk, 2006.p.368). Such policies advocates for the floating exchange rates as they believe that they are the best ways to help a country grow into the best shape. Others believe that a country should have all the power to state the type of exchange rates and those that can make them grow. These types of economists are advocating for the free fixed exchange rates (Schnabl, 2008, p.70). They believe that the fixed rates allow a country to grow without being affected by the other factors that come from the other countries. Practically, there are several exchange rates that are applied by this country. All these rates have extreme variations. Because of the variations, they compromise on the stability as well as the country effectiveness (Darvas, 2012, p.443). The flexibility as el as the status of the country also changes massively.
The exchange rates in Azerbaijan had for a long time been pegged and the changed in the later years. There were factors such as the substantial widening and the bands for fluctuation that changed the way the economy was operating (Nordstrom, Roger, and Stone, Shimizu, Kisinbay, and Restrepo, 2009, p.44). The country jade been pegged for quite a long time and then later on effectively removed through a substantial broadening of the various bands. Azerbaijan economy functions under different regimes, each having their weaknesses and strengths (Lane, and Milesi-Ferretti, 2007 p .223). Azerbaijan has from among time managed to effectively balance the relationship status as well as the performance of the economy (Frieden, Leblang, and Valev, 2010. p.1). Similarly, the country had been self-sufficient for long before giving up to the pressure of the international monetary fund and the other international bodies. Having the fixed exchange rates had served the country for the better and for a long time (Jamilov, 2013. p.313). There were numerous people who were interested in the economy, making the country to reconsider is a position (Ilzetzki, Reinhart, and Rogoff, 2017, p.252)
There had been numerous advantages that the country had through the implementation of the fixed exchange rates (112 Jamilov, 2013. p.313). As a country that relied on the oil exportation, it was easier for the foreign investors to buy the currencies as they were sure that the rates would remain the same, the country also had the best stability in terms of economics and the other political factors. The fixed exchange rates were questioned by the people who wanted the dollar to gain a massive advantage over the manat. As an official currency within the country, manat had an advantage from the time the country started to implement the fixed exchange regime. Buy this time; the dollar was selling at 0.72 dollars (Frieden, Leblang, and Valev, 2010). This means that the local traders had a higher value for the oil products when they exported their products abroad. It also meant that there were few imports as the foreigners knew that they would not get the best return for their country. These were the main advantages together with the stability that the country got. It also meant that he foreigners and importers knew what they were getting from the importation deals. Meanwhile, there were local investors that feared for a possible economic shock as they did not want any possibility of the currency losing its credibility and the attached value. It caused a massive hesitation in the most important institutions on the country. They had to find a way to balance the books and ensure that all the interested parties are satisfied. This s when the country decided to switch towards the floating exchange rates. In the case of the floating rates, the market determines the value of Manat.
The motivation for this studyThe current situation in Azerbaijan and the operating systems have been a major focus for different studies. The future of the banking systems also depends on the type of exchange regimes in the country. This makes the positive and negative impacts of the type of exchange regimes in a country be a center of attention in the country. This research looks into the details of the success and the failure of the two types of exchange rates. This is the main motivation for this dissertation. It is also true that the research will be followed along with some of the other research works that will bring the topic to a better conclusion.
The main aim of this study is to state the positive impacts that Azerbaijan have had as a country that applied the fixed exchange rates. The paper goes on to look at the negative effects that the same fixed rates have had on the economy. The paper goes on to examine the negative and the positive effects that the country’s economy has had as a result of applying the floating exchange rates. There are several kinds of literature about the benefits of a floated or a free system regime. This works these advantages and the recommendations that they come with. This study also examines the impacts that the monetary body in Azerbaijan has had on the economy. As the basis that is responsible for controlling the rate and the value of the country currency, the central bank is also evaluated on this basis.
This study is meant to develop the theories behind the success and failure of different types of exchange rates. Different countries apply different types of exchange rates. Both of these have the different positive and negative impacts. This study looks at both of them, particularly in Azerbaijan. As a country that had for a long time applied the fixed exchange rates methods, the study will look at the advantages that the country got from those efforts. The main sectors that are affected by the exchange rates include the banking system and the oil industry. These are sectors that depend on the foreign economies and the exchange rates as well as the conditions that are used in the market. Hence there is the seen to have several consolidations on the part of the banking systems that depend on the economy.
Research questionsTo meet all the objectives of the research, there are several questions that his research has to answer. These problems are the main causes of concern to the economy of Azerbaijan. These questions are the main guidelines for the logistics and the structure of this thesis. Hence, this thesis answers the following questions
What are the types of exchange rates that are used in the economy of Azerbaijan?
What are the benefits of using the fixed or the pegged exchange rates in Azerbaijan?
What are the challenges that come with using the free or floated exchange rates?
What are the main sectors that benefit from the different exchange regimes?
What is the way forward for Azerbaijan regarding the policies in the exchange rates?
How is the price of oil in Azerbaijan affected by the different types of exchange rates applied?
Research hypothesisBoth the floating and fixed exchange rates have their own benefits to a country that implements them. In Azerbaijan, the country has experienced both. Because of this, the study developed a different hypothesis that has to be made before the actual study. The following types of hypotheses are developed from the study.
H1.0: fixed exchange rates might have negative effects on the economy of Azerbaijan
H1.1: fixed exchange rates might have positive impacts on the economy of Azerbaijan
H2.0: floated exchange rates may have negative effects on the economy of Azerbaijan
H2.1: floated exchange rates may have negative effects on the economy of Azerbaijan
Literature reviewEconomic status of AzerbaijanDevaluation of the national currency of the Republic of Azerbaijan in 2014 was due to economic fluctuations in the world. Carranza, Galdon-Sanchez, and Gomez-Biscarri gave an explanation for this situation and claimed that there were factors for this type of inflation, especially in the year 2014 (Carranza, Galdon-Sanchez, and Gomez-Biscarri, 2009. p.98). The same ideas are also developed by Müller-Riemenschneider, Reinhold, Berghöfer, and Willich, 2008, p.499) and states that the unsettled conditions in the country led to a massive hesitation in the investors. Jongwanich, 2007 states that. This greatly affected investors resulting in huge losses. Müller-Riemenschneider, Reinhold, Berghöfer, and Willich (2008, p.499) adds that this fluctuation affected not only the citizens of Azerbaijan but also big financial organizations government owned initiatives and the owners of businesses. The idea of the manat exchange rate with the US dollar being constant in 2017 February, this has not fully satisfied the investors as they do not have full confidence due to the previous unexpected losses they experienced (Berkmen, Gelos, Rennhack and Walsh, 2012. p.42). Some aspects that make investors shy off is that they do not completely trust the Central Bank of Azerbaijan playing the central role of exchanging the currency within the state (Frieden, Leblang and Valev, 2010.p.1). The fact that the value of Manat currency depends on the market entirely translates to the uncertainties that are expected any time (Anderson and Swinnen,2008, p.55). It is the stock market that determines its exchange rates (Frankel, 2010, p.67). He investors believe that to avoid unnecessary losses. Hence, the floats have to be fully managed by the relevant institutions
A significant observation that revealed that when there are factors that affected the rate at which manat was exchanged in 2017 in February and November. This factors resulted in the prices of oil dropping by around $10 from $55-$45 and afterward increased by $12 to $67 (Towbin and Weber, 2013.p.179). .As a result, Müller-Riemenschneider, Reinhold, Berghöfer, and Willich, states that this led to the depreciation by approximately 12%of value of the US dollar (Müller-Riemenschneider, Reinhold, and Berghöfer, and Willich, 2008, p.499).
This occurrence where the domestic currency could not have escaped such a change raises suspicions on its reliability (Towbin, and Weber, 2013. p.179). Putting into consideration the importance of this subject, This research aims at exploring all the determinants of the exchange rate and any other advancements that may have been employed in 2018 (Lane and Miles-Ferretti, 2012. p.252). The Inspiration on doing this research and writing the dissertation is my direct involvement with various financial institutions and banks that handle currency exchange and also my ambition to work in the banking sector shortly (Calvo, Izquierdo and Mejía, 2008, p.55). There have been several research that has been mentioned earlier in 2015 on currency exchange rates devaluation. (Müller-Riemenschneider, Reinhold, Berghöfer, and Willich) emphasized the benefits that a country gets when they apply the fixed exchange rates (Müller-Riemenschneider, Reinhold, Berghöfer, and Willich, 2008, p.499). This was also testified by (Hasanov, 2013. p.463) that the rates are the main reasons for the best countries to develop better. This will also in the labor market give it a privilege (Bartram, 2008.p.1508). The main Purposes of these past studies have been to focus on the crisis experience by banks handling currency exchange and the measures they put in place to solve this crisis, and in addition to coming up with a theoretical, employed methodological features of the concept. One of the best research works that were done was by (Müller-Riemenschneider, Reinhold, and Berghöfer, and Willich, 2008, p.499). There are regulatory measures or the developments by the banks, and also the management plans or advancement policies of Banks in the Republic of Azerbaijan (Furceri, and Borelli, 2008. p.42). There have been several data sources that reveal that the used samples from the board data both time series and cross-sectional values (Wacziarg, and Welch, 2008. p.187). These studies have included 41 CBA legally registered financial banks in 2015. Also, the literature and studies also emphases on the results of currency deflation and effect on banks and the cost of oil in the Republic of Azerbaijan, and the importance of incorporation of in all commercial banks structures (Lucayan Petr ova, 2008.p.858). These researchers also aim to attain the set aim of the study, this in-depth research not only determines the reason and the structure of the research, and it also answers all the questions on the subject of this study (Rose, 2014.p.5). In the first periods, some factors affect the effects the exchange rates in a positive way. As a consequence of this analysis, three is a slight drop in the prices of oil that is caused by different factors (Jamilov, 2013. p.313). The current situation in Azerbaijan country about the global market
The apparent global market has a huge impact on the stats of Azerbaijan country (Papa Georgiou, Berg, and Patella, and Spatafora, 2010, p.36). The price of oil depends massively on the prices that are stated in the global market. They are all determined at the international market level (Fakhri and Samadova, 2010, p. 67). When the fiscal revenues of the country are considered in the international market, the national currency must also be taken into account and have to be considered in the calculation. The global price of oil is an issue that has been rising in the country (Jahjah, Wei, and Yue, 2013. p.1275).
Impacts of the fixed and floating ratesThe current market situation
The current global market environment is positive when the country’s fiscal revenues and the national currency are taken into account (Dubas, Lee, and Mark, 2010. p.1438). The rate of converting the dollar to the manat (AZAN) is the value that gives the rate of exchanging the currency in Azerbaijan (Eichengreen and Gupta, 2015. p.1). It shows the amount of one dollar currency is worth about the other manat. The first issue where there was a massive problem was in the year 2017. On this year, there was a record that shocked the whole country (Lin, S. and ye, 2011.p.641). On this occasion, the exchange rate for one dollar was approximated to be about 1.92 AZN (Jamilov, 2013. p.313). Several factors caused this issue. According to Gwartney, Lawson, and Norton, the main factors include the illegal black markets that trade the currency without the knowledge of the central; bank (Gwartney, Lawson and Norton, 2008, p.43). Dubs, Lee and Mark add that apart from this, there were the order psychological factors that hit the country (Dubas, Lee and Mark, 2010. p.1438). The country was unable to reform this situation and was a major concern for almost everyone that was working in the financial sector (Abbott, and De Vita, 2011.p.37). The ineffective monetary policies were the other main causes of this situation. This meant that the controlling financial bodies in the country such as the central bank as well as the other busies that are functional in the Republic of Azerbaijan lost the credibility that they had, and their ability to solve the economic issues was scrutinized and questioned (Bartram, 2008. p.1508). When it comes to the financial market, the bodies lost all the voices as well as the credibility that the international market had for them (Sukiassyan, 2007, p.35). Nonetheless, the country has an upward growth, and the national currency is massively gaining the right hat it should have according to the latest statistics (Bénassy-Quéré, Coeuré, and Mignon, 2016, p.112). There has been an increase in around twelve percent against the United States dollars.
The value of ManatManat is the official national currency of Azerbaijan. According to Pearce, and Kendzior, currently, one US dollar is trading at 1.7 (Pearce, and Kendzior, 2012, p.283-298). The use of the strict monetary plan by the central bank of Azerbaijan also had its advantages. It meant that there was a massive demand of this expensive Manat. Ilzetzki, Reinhart, and Rogoff state that the manat was not easy to get (Ilzetzki, Reinhart, and Rogoff, 2017, p.252). Frieden, Leblang, and Valev add that the central bank had hoarded all the money and there was the limited amount that floated in the market. This strict rule, therefore, has its benefits to the country (Frieden, Leblang and Valev, 2010. P .1). There was a massive shrink in the manat and the other deposits that are based on the manat (Di Giovanni, and Shambaugh, 2008, p.341). There was too much bond that paved the way for the numerous auctions that led to many of the citizens feeling that they are all assigned and have the right to auction the bonds as well as the other resources in the country. According to the research that was done by Guile, this implies that the demand for the foreign currency was also reduced (Guliyev, 2009, p.77). If there is the high demand for the local money, then the foreign currency is not needed as the people are suffering and they cannot easily get their own money (Genc, and Attar, 2014, p.10). There is no need of getting the international money if the people find it hard to get their own money. Coudert and Couharde add that if the one is available in the market, then the demand for the foreign money increases (Coudert and Couharde, 2011 p.121). If the demand for the foreign money increases, then it means that the value of the local money will have to reduce as it is no longer needed. This was the situation in the country as they applied the strict and the fixed exchange rates (Berkmen, Gelos, Rennhack and Walsh, 2012. p.42). There have been several reasons as to why there has been the recent increase in the amount of money that is in the market. Frieden, Leblang, and Valev state that one of the key reasons where is the fact that several financial policies are restricting the payments in the country (Frieden, Leblang, and Valev, 2010. p.1). These policies determine the way the country can conduct the many exchanges that the place between then businesses and how the currencies are exchanged with the other currencies. Additionally, Fakhri states that as the situations worsened, the country saw the need to adjust the May restrictions and the policies that it applies in many cases (Fakhri, 2010. p.44 and Tenreyro, 2007. p.485). De Brock and Sløk approve of this statement by saying that these policies were the main reasons why the value of the money lactated through a massive depreciation and a later a massive appreciation as well. Oil incomes are a significant factor for the economy of Azerbaijan (De Brock, and Sløk, 2006.p.368). As a result of the delayed drop in oil costs, national oil godsends were decreased. Because of its abnormal state of dependence on oil rents, the Azerbaijani economy performed severely amid this time (Schnabl, 2008. p.70)
. Subsequently, the Money related. Expert needed to control large-scale financial steadiness using a few instruments. In other words, the CBAR has sought after a strict money related arrangement through raising the loan fee of the manat from 9.5% to 15% (on 14 September 2016) and limiting the manat base by around 600 million manats in the main quarter of 2017. Drava states that the CBAR’s key destinations in raising financing costs of the national cash were to control expansion rates, increment the rates connected to stores and securities in business sectors (to remove manats from trade markets and point of confinement interest for remote greenbacks and to upgrade trust in the national money (Darvas, 2012, p.443). This argument have also been backed by (Berkman, Gelos, Rennhack, and Walsh, ) who says that the financial situation in a country depends on the type of exchange rate that they have applies (Berkman, Gelos, Rennhack, and Walsh, 2012, p.325).
Impacts on the oil prices
Nordstrom, Roger, and Stone, Shimizu, Kisinbay, and Restrepo state that the prices of the oil in the country have been on the ups and downs. This is due to the policies that had been set by the monetary authorities in the country (Nordstrom, Roger, and Stone, Shimizu, Kisinbay, and Restrepo, 2009, p.44). When considering the global prices for the oil, especially the oil from the country, there are several trends that can be seen. Lane and Milesi-Ferretti says that first, this can be seen when making the comparison for the previous years (Lane, and Milesi-Ferretti, 2007 p.227). The average price that can be calculated on a yearly basis. The “Azeri Light” type of oil was sold at 43 dollars in the year 1016 for each barrel. On average, this price has fluctuated and has increased by more than 22 percent in the year 2017. This is a reflec6ion of the wider economy. Towbin and Weber states that it shows that his macro economy of the country is stable in this sector. The Financial Expert of the National Bank of the Republic of Azerbaijan used to meddle in the monetary market and had an inclination for a pegged cash rate (Towbin, and Weber, 2013. p.179). The Money related Specialist figured out how to take after this strategy amid times of higher oil costs, which rose to bigger oil benefits. Since 2014, worldwide securities exchanges have been stood up to with a delayed drop in oil costs (Hasanov, 2013. p.463). Subsequently, oil creating nations, for example, Azerbaijan, confronted a sudden or spontaneous decrease in oil incomes and an exacerbation of money related and monetary approaches (Fakhri and Samadova, 2010, p.67). As a necessity of the pegged conversion scale approach, the Money related Expert needed to meddle in cash advertising, which lessened the outside trade stores of the National Bank. In addition, before the dive in oil costs began, the CBAR had more than 15 billion USD for possible later use, while toward the finish of 2016, the CBAR had under 4 billion USD for possible later use and lost its provider position in sales to business banks. After the execution of the drifting swapping scale arrangement through “The Key Guide of the Republic of Azerbaijan on National Economy Points of view”, the Financial Specialist took after an Extension Quantitative Facilitating (Eichengreen and Gupta, 2015. p.1 and Jamilov, 2013. p.313). Arrangement for remote monetary forms with a specific end goal to get money related solidness in the nearby economy and meet market necessities through the help of SOFAZ. Two times per week, SOFAZ gave outside money to business banks through sell-offs. In expansion to the previously mentioned strategy, SOFAZ exchanged 4.2 billion dollars to the CBAR to recharge the outside trade stores of the National Bank (Gwartney, Lawson and Norton, 2008, p.45). As a result of the exchanges and liberal swapping scale arrangement, the CBAR currently has about 4.5 billion USD for possible later use (London, Saborowski, and Sapriza, 2017. p.191). There have been times when the prices of the oil have reduced, and this was a notice that could be well seen by the other members of the country (Gagnon, Joseph, Tamim Bayoumi, Juan Londono, Christian Saborowski, and Horacio Sapriza ,2017, p.23). They noticed that his country had its oil prices reduce by more than ten percent. However, the situation was solved just months later. (Fakery, 2010, p.25) gives the impression that Azerbaijan had been performing well before the influence of the outside market that decided to destabilize the market and the subsequent status of the country. There are several factors that make these prices stable after some time (Avdjiev, Bruno, Koch and Shin, 2018, p99). One of these factors is the different typed of the countries doing the dealing of oil. This is in terms of the OPEC and non-OPEC decisions that are taken by these countries (BIS, Bruno, and BIS, 2017, p.334) The country also decided to control the prices of the oil after some time in the country so that the prices can remain at a level that is maintainable and one that the country makes the most out of the resources that it has (Varies Obstfeld, 2015, p.223). Currently, the barrel of oil was trading at sixty-six dollars as there was a massive awakening of the dollars due to the decline of the commercial reserves that are seen in the three countries that also act as the oil suppliers (Demirgüç-Kunt, Horváth, and Huizinga, 2017, p.223). “Azeri Light” oil has always been trading at a rate of between 66 dollars to 70dollars as it is a commodity that is unavailable in the market.
The figure below shows the dynamism of the prices for the “Azeri Light” oil trade as per the year 2017. The values are given on a monthly basis.
USD/barrelAverage prices for oil in the country: $53.7
Source: This information is from the oil company of the state at the Republic of Azerbaijan Republic. 2017
Stocker, Baffes, and Wheeler states that by the year 2018, there have been positives on the basis of the economy of Azerbaijan. There are several sources of these positives (Stocker, Baffes, and Wheeler, 2018, p.223). The national currency has been assessed, and all that comes out of this are the deposits. The citizens of the country are also aware of the economic situation (Avdjiev, Bruno, Koch and Shin, 2018, p.332). (Schnabl, 2008.p.70) states that a country also depends on the domestic factors so that it can perform better in the market. Issues such as the balance in the payments well as the methods that are used to control finance are also crucial for the performance of the economy (Tenreyro, 2007, .p.485). These factors determine whether the price of the currency depreciate or the value will appreciate. The oil prices have a massive say in these issues, especially those that relate to the international oil prices. It also has a say in the international market as well (Yeyati, Sturzenegger, and Reggio, 2010. p.659). The oil prices in a country that has fixed rates are easy to trade with from the outside countries. More than ninety five of the exports are made of oil. Hence, the country depends massively on the price of the oil when they are exported (Honig, 2009.p.198). This is a type of relationship that is highly affected by the international market. It also has a huge risk in many cases. This is the main Eason why the government is always pursuing the policies that are quite prudent to the international send the local market (Harms and Kretschmann, 2009. pp.139). The risks that are involved are too much for any country to bear. It is in this manner that the protection against any external or any internal fluctuations (Markiewicz, 2006.p.486). This idea of having a fiscal checkup is also necessary as it avoids the possibility of having an external shock that can massively impact the country in a negative way (Carranza, Galdon-Sanchez, and Gomez-Biscarri, 2009. p.98). The sudden appreciation has been a massive loss to the country. There are other factors that are related to these conditions as well (Frankel, 2010, p.34). Fortifying of the national money in the scope of 3% ought not to be disregarded. Then again, we trust that the authoritative administration of the manta’s rate will proceed in 2018, which is one of the significant challenges in anticipating its conversion scale (Berkmen, Gelos, Rennhack and Walsh, 2012. p.42). Frieden, Leblang and Valev, states that considering the majority of the elements specified, on account of no sharp decrease in oil costs in the January – November 2018 period, the likelihood that the national money will stay stable will be high, the likelihood of manat reinforcing with low loan fees will be low-medium, and the likelihood of the manat spoiling is anticipated to be low (Frieden, Leblang and Valev, 2010.p.1). The effect of political variables will debilitate in the assurance of the manta’s swapping scale for the accompanying time frame, though the cost of oil will be a vital pointer and the Central Bank will assume a key part. One of the most significant bodies in Azerrrbbbaijan is the Monetary Authority (Towbin and Weber, 2013.p.179). This is the body that is charged with guarding the future of the country and the status of the country. They are in charge of controlling the rates of inflation and the amount of money that is available in the country (Lane and Milesi-Ferretti, 2012. p.252). Recently, this body started to find out about the recently tightened policies and whether they were beneficial to the economy. But the advantages and the disadvantages were considered in many ways (Luca, and Petrova, 2008.p.858).
The fixed rates implementation and its impactsAccording to the definition by Calve, Inquired and Mejia, a fixed exchange rate refers to a situation where the currency exchange does not depend on the market. It is determined by the monetary institutions which determine the rates that are used in exchanging the currencies (Calve, Inquired, and Mejia, 2008, p.334). The decision to allow much money into the market is done by the bodies that are in charge of the country operations (Bartram, 2008.p.1508). This makes the currency of the country increase in demand. At the same time, the rates that were being used to exchange the value with the foreign currency remains depending on the value that has been assigned by the monetary bodies (Furceri, and Borelli, 2008. p.42). In Azerbaijan, the situation is similar to all the other areas. The country has undergone several regimes. From the year 1994 up to the year 2014, the country had been operating on the fixed exchange rates in all the ways (Wacziarg, and Welch, 2008. p.187). There were statins such as the development of insecurity in terms of the value for the money that is in circulation. There are those who do not know about the status of their money as they are only allowed to have the rates that have been presented to them. All the interest groups saw the insecure position that they were taking in terms of their currencies (Rose, 2014.p.5). The status of the country became of a massive concern for the government, foreign investors as well as the local people. The government also started receiving threats about the sustainability of the financial position (Jamilov, 2013. p.313). Coupled with the pressure of the people, the government and the other financial bodies that are in charge decided to find ways that they could reduce the pressure. The pressure on manat also increased in ways that the people could not understand (Papa Georgiou, Berg, Patella, and Spat fora, 2010, p.332 and Jahjah, Wei, and Yue, 2013. p.1275). Before making a decision, the central bank have to write notes to the people s that they can prepare for any of the changes that are about to take place (Dubs, Lee, and Mark, 2010. p.1438). This is why there was a massive devaluation on the currency so that his money could be sustainable both to the local people and to the foreign exchanges as well (Lin and Ye, 2011.p.641). The only problem is that the devaluation resulted into some issues that affected the currency of the country the worst. Form the year 2014, the value currency was devalued with around 22 percent (Dubas, Lee and Mark, 2010. p.1438). However, it was later on devalued by a further 35 percent. This was the main problem that the country started facing. It resulted to the manat currency becoming the worst currency (Abbott, and De Vita, 2011.p.37). In the year 2015, the devaluation made manat the worst currency on the globe. It meant that the currency moved from one of the best performing ones to one that was one of the worst. The value that the currency lost was more than forty nine percent on the value (Sukiassyan, 2007, p.35 and Pearce, and Kendzior, 2012, p.283). Many investors started raising the different questions and the reasons why their currency could drop suddenly up to the level that it was never expected (Di Giovanni, and Shambaugh, 2008, p.341). The slumping oil has also had a massive impact on the value of manat. The lost value called for a better devaluation the following year (Guliyev, 2009, p.223) and (Genc, and Artar, 2014, p.10). the economic problems also came with numerous criticisms from several people. The people concerned accused the central bank as it lost its credibility. It could not control the exchange market as the boys could not e trusted by the other foreign banks as well (Müller-Riemenschneider, Reinhold, Berghöfer, and Willich, 2008, p.499). The change into the floated system called for numerous administrative interventions. These interventions were to help the situation to see the best way to help the currency that had been stable for more than two decades (Anderson and Swinnen, 2008, p.223) and (Jongwanich, 2007, p.23). this became a massive problem to the investors. The only problem was that the other interested parties feared that the country might not sustain the financial stability of the region (Londono, Saborowski, and Sapriza, 2017. p.191). according to (Gagnon, Joseph, Tamim Bayoumi, Juan Londono, Christian Saborowski, and Horacio Sapriza. 2017, p.223), the basis of a financial crisis I failing to adjust to the situation that have been presented by the stock market. The restrained values also resulted in chaos as the money still lost about ten percent of its value again (Avdjiev, Bruno, Koch and Shin, 2018, p.334).
The graph below shows the breakdown of the exchange rates against the dollar on the value of manat through the given period.
Source: central bank of Azerbaijan.
The value of the manat currency increased massively within the first decade as can be shown from the graph. However, in the last eight months saw the value of the currency depreciate massively (BIS, Bruno, and BIS, 2017, p.334) and (Varies Obstfeld, 2015, p.334). These show that there have been more than five turning points for the currency. (Demirgüç-Kunt, Horváth, and Huizinga, 2017, p.223) and (Stocker, Baffes, and Wheeler, 2018, p.334) states that his better performance was noted by various countries as well as the different investors across Europe. The participants have opted for the positional sales. Subsequently, the impacts that the psychology that has felt on the relatives in the year.
Findings and AnalysisPositive impacts of fixed exchange rates to AzerbaijanThe people who would like to put their money into buying the currency in the country are aware that they are buying the money that is fixed and the value will remain higher in the future years. Hence, the fixed exchange rates are beneficial to Azerbaijan as there are countries that are encouraged to invest into the currency of the country. Avdjiev, Bruno, Koch and Shin, also adds that , similarly, as the demand for the local manat currency is always on the rise, the fixed exchange rates means that the investors are sure about their investments (Avdjiev, Bruno, Koch and Shin, 2018, p.34) and (Schnabl, 2008.p.70). Tenreyro, says that hidden exchange rates that are expected as the traders are aware of the amount that they will be receiving if they are to trade on the currencies. A country only has a say on its currency and it have to adjust the value depending on how the currency performs in the market. Because of this, the currency have a massive advantage (Tenreyro, 2007. p.485) Additionally, the fixed exchange rates lays the status of the country bare. The interest rates that are charged on the loans are also massively affected by the type of exchange rates that are applied. Yeyati, Sturzenegger, and Reggio, states that the members of the country can borrow the money knowing that the interest rates are lower, this allows for the local investments by the members of the country (Yeyati, Sturzenegger, and Reggio, 2010. p.659) and ( Honig, 2009.p.198). It also means that the people grow better as they are having the ability to better their lives through investments. Fixed rates are best known for the role in making the country as stable as possible. This is the same situation that has taken place in Azerbaijan in for more than two decades from the year 1994 (Harms and Kretschmann, 2009. p.139) and (Markiewicz, 2006.p.486). This is because the fixed rates have been based on the ant inflation measures. Hence, while putting these pegged policies, the country is guarding itself against any form of inflation that comes as a result off the local currency losing its value (Carranza, Galdon-Sanchez, and Gomez-Biscarri, 2009. p.98) and (Frankel, 2010, p.334). The increased opened and the anti-inflation advantages have meant that the country has better policies than most of them. On the other hand, these policies have been known to affect the country negatively as well (Berkmen, Gelos, Rennhack and Walsh, 2012. p.42). The economy of Azerbaijan have been known to be at a risk of experiencing an economic shock. These economic shocks is the major issue that have made the people of Azerbaijan to worry about the fixed exchange rate policies (Frieden, Leblang and Valev, 2010.p.1) and (Towbin and Weber, 2013.p.179). The economic shock can take place in relation to the other countries adjusting their currencies. This easily derail the economy of Azerbaijan. At the same time, the fixed exchange rates makes it difficult for the country to allocate the resources (Lane and Milesi-Ferretti, 2012. p.252)
These issues are the main negatives that the country faced through the time that it applied the fixed rates. At the same time, the country have to deal with the pressure of having to allocate the limited resourced to the entire population (Calve, Inquired and Mejia, 2008, p. 223). The main economic exports of the country are the natural gases and the other forms of gases such as the petroleum oil and crude oil (Bartram, 2008.p.1508) and (Forcer, and Borelli, 2008. p.42). they constitute about 95 percent of the Azerbaijan economy. They are the main exports that come from the country. In according to the reports in the year 2015, the country had exported more than 16 billion dollars of oil (Wacziarg, and Welch, 2008. p.187). This ranked as the 70th exported on a worldwide scale. The country ranks at number 93 worldwide as an importer of the goods and services. The main imports are irons and consumer goods that the country uses.
Negative impacts of fixed rates to AzerbaijanThe depreciation that was observed had a massive impact on the trading capability on manat. This also intensified as the demand for the currency exceeded the supply. This demand was about 14 times the amount that was supplied. This was intensified by the auctions that was done by the government. The banks also get the exchange rates for the foreign currencies at the highest possible value even though the money was more available to the people than the local manat (Papageorgiou, Berg, and Pattillo, and Spatafora, 2010, p.45). There were numerous restrictions on the acquisition of the local money. Also, the traders have to adjust depending on the status of the currency in a country. In 2016, the government decided to allocate more than two hundred million US dollars of oil products from the states as well as one hundred US dollar from the central bank. These amounts were all allocated for auction. It also resulted it a subsiding impact on the currency market for some time before the value could be recuperated (Papageorgiou, Berg, Pattillo, and Spatafora, 2010, p.45). The impact was massively felt psychologically as there was over 1000 million US dollars that had been sold. The appreciation also led to a slight increase in demand for the manat currency. As the country had the fixed economic rates, the economy was stable and the currency of the country was stable. These stability also aroused interests from several people and investors who felt that the economy of Azerbaijan was best placed to proceed in terms of its currency value. For more ta three decades, the country was stable and ha its currency better equip to dealing 3with all the economic challenges that had been presented (Tenrikyo, 2007, p.455). This was also associated with the ant inflation policies. The manat value had to remain the same as the prices of the products were sold at process that were well fixed and the prices that were well known by the traders. There were also numerous cases of the lowered risks. The positive impacts allowed the interest rates to be low for quite some time. The interest rates is one of the reasons a country develops massively. The locals can always borrow the money as the rates are constant and they do not have to overpay for the loans. This is one of the best conditions in a country that is created by the fixed exchange rates. This meant that the people did not see the value of the foreign currency as they understood the risks of having the international currencies.
At the same time, the pegged policies encouraged numerous cases of investments. There were several cases where the local currency was on a high demand that meant that several people could invest on the local currency. It is imminent that economic growth follows such stability. The pegged currency exchange rates also encouraged the openness in the currency. As the country have the rates that are fixed, the international community is aware of the operations of the local money. They, therefore, can choose whether to invest or to restrain. As they are aware that the economy of Azerbaijan was at a level that was understood by everyone, it allowed the investor to take their time and decide onto whether they were investing in the market or not. There are several advantages that this level had on the currency. Some of the local people started to take more of the local money. Even though this can be seen to be negative, it encourages the local investor to trust their currencies as they were well aware that their money was safely investment. The increased international trade also promoted the international backing in term of communication and the other promotional activities. The promotion in the stock market was high as those was something that was open to everyone.
The other advantage is that Azerbaijan had a massive advantage over the other international currencies, including the united states of emerita. The local goods could be manufactured at the lowest cost. Being that Azerbaijan is known for having a low cost of production, the local producers could trade effectively as they could trade their goods on the international market at higher prices. The country mainly exports products such as oil products and sugar. The oil products such as petroleum oil and crude oil are mainly exported to some of the partners such as Germany and Indonesia. The other partners are check republic and Italy. Azerbaijan also produces a large quantity of raw sugar as well as the notes that are exported to the other European nations. Similarly, some of the techniques that were used but the central bank to control the value of the currency included hoarding the money and keeping it away from the economy. This meant that the money was not much into the economy. The people also saw this as an advantage top the dollars as they could easily get the dollar in a cheaper way than the local currency. The fixed rates meant that the dollar would flood into the country leading to dumping of the dollars that were way cheaper as compared to the local currency. After giving into the pressure from the international community, the floated exchange rates started to change things. The value of the manat started to trim down, and the dollar gained an advantage over the local currency. It also meant that the local currency had to be readily available so that people can use it and spread it into the economy. Within a period of twelve months, the currency in the country had already moved from the one that is better equipped to one that was worst performing around the globe. The central bank of Azerbaijan, as well as the other monetary controllers, lost all the credibility that hey ad as well as the ability to influence the international currencies (Papageorgiou, Berg, Pattillo, and Spatafora, 2010, p.45). The dollar was more expensive hence the country had to rely on its currencies to perform transactions. Through releasing more money into the economy, there was a reduced cost of production that was advantageous to the people as well.
While these products are the basis of the survival of the economy, Azerbaijan benefits massively while exporting them. These rates ensures that the country produce goods that are valued highly by the other countries. Tis helps in ensuring that the local producers get the best out of what they export. These producers, therefore, are sure that he produces that are exported will have a massive profit in comparison with the other currencies. In the year 2000, the manat traded at 0.7 dollars. At this time, the product in the country. This was the main benefit of having such as a fixed rate in the country. The other advantage of the goods was that he imports into the country were never expensive. It has mainly raised the value of the currency in the country. This allowed the locals to achieve the best possible returns for their money. There are several imports that the country gets into the country. Some of them include the passenger cars as well as the wheat that are from Turkey and Germany. The country also imports cigarettes and sugar. Some of the products that are imported into the country include the cars and the produces that can be consumed directly by the local people. These include cigarettes and fruits. The main countries that import the products into the Azerbaijan include Germany, USA among the others. Some of the negative effects of the fixed exchange on Azerbaijan include the vulnerability that the rates have to the economic shock. There had been cases when the economic shock was positive. However, in most cases, the people felt the negative impacts of the economic shock. Economic shock refers to the situations where the economy of the country have to adjust to the situations that it did not prepare for. The central bank have to ensure that there is the highest possible value that is attached to the manat currency.
Positive effects of floated exchange rates to AzerbaijanThe market mainly determines the floated exchange rates. They are not pegged. This is a system that started operating in Azerbaijan in the year 2014. The country had received too much pressure from the press and from the international community see that they could change the prices of the products and that the country could have its economy crumble suddenly as a result of the high value that was placed on the currency. The floated system also had its advantages that are associated with it. The currency in floating exchange rates also makes it easy to adjust to the market. The other factors have to remain constant for this to take place. In the past, the balance of equilibrium had been a major issue to the economy of Azerbaijan. The country could not manage to make them equal. This is a sector that the country has suffered for long. In case there is the balance of payment, then the currency will automatically depreciate. This is a massive advantage that Azerbaijan have had over the past years after adopting the floating exchange rates policies. The policies also ensured that the country has the exports that are cheaper so that there is an increased demand for the local goods. The imports are also meant to be expensive in such as situation. This ensures that there is an equal and a restored balance of payment. The surplus is also eliminated automatically without the interventions of the international or the local banks.
The other advantage that Azerbaijan has received from implementing the floating exchange rates is the fact that the internal policies have been freed. This means that the balance of payment that the country uses are affected by the changing of the foreign currency value. This is different to the fixed rates where the policies involve reducing the deficits and the =general deflation of the whole economy. These policies are freed in the floating system and regimes. This is important in the economy that depends on the oil exportation to the three countries such as Azerbaijan. This enables the government to concentrate on the other policies that can help the country to grow. Such policies include the demand pull types of inflation.
The other advantage is the lack of economic crisis. When a country is implementing the free exchange rates, then the country can never experience any economic crisis or the economic shock. The country can never be under any pressure. For a long time, the economy of Azerbaijan have largely depended on the central bank to value and devalue the rate of the currency. With time, the banks gets too much pressure so that they can devalue the currency in relation to the external factors and the external currencies. The only way that it uses to manage this is to give too much money to the people so that his economy can be balanced. However, it reaches a point where the country cannot manage to Gove too much money into the economy. In such situations, the economy suffers massively. The economy is also susceptible to shock. However, the floating economic exchanges are never susceptible to such situations. In case the central bank still works on such issues, with time, it runs out of the ideas and the situations becomes quite unbearable in the country. At the same time, if the central bank of Azerbaijan decides to value the currency, the money that is forced to give very little amount to the economy. The country will receive large amount of the other currency. It is the other currency that will flood the market as they are the ones that are available. At this rate, the country will still suffer as iota ca not control the available amount in the market. This was one of the issues that Azerbaijan suffered from massively in the recent times, specifically between the years 2007 to 2009. The dollar was too much in the country as the money was not available. The market was then flooded with the dollar and the manat was difficult to find. Under the floated currency value, the country is unlikely to be faced with such issues. They are free from such kinds of crises. Al these issues are eliminated from occurring in the economy.
Another positive impact of the floated exchange rate is the ease of management. This means that the government of Azerbaijan is enjoying the best possible scenarios of the discretion. Specifically, this situation implies that the government is enjoying the most of the freedom. They are free to manipulate the foreign currencies. This can also be done to their advantage. Hence, it is better for the economy as the economy of the country is not dictated by the factors that are constant.
The other positivity that the government, if Azerbaijan is benefiting, is the flexibility that they get from the floating exchange rates. From the year 1973, the world has been trying to figure out how to deal with the changes in case there is a rise in a product crisis. For instance, the oil crisis that took place in the year 1974 manat that the countries can only rely on the rates that are flexible. The country that does not want it to adjust their currency according to the demands of the market may find it difficult to adjust such issues. As a country that is known to be an oil exporter, Azerbaijan can benefit massively from the flexible or floating exchange rates in case there is a high increase in the demand for oil. When there is a high demand for oil, then the country should take massive advantage of it. This is a positive value that the country gets from the floating exchange rates. There have never been the best ways that can be used while dealing with the changes in prices.
The other advantage is the fact that the floating exchange rates help the country avoid unnecessary or unpredictable inflations. It insulates Azerbaijan from getting the inflations in the other countries. In case the country decides to operate at a rate that is fixed, then it imports the inflations that are in the other countries. The other countries can dump their money into Azerbaijan. However, in case the country lets the market to decide on the rates, it will balance, and the country will not be able to import too much money that comes from the outside.
The other advantage Azerbaijan receives from these floating exchange rates is the lowest possible reserves that take place in the country. This means that the country does not have to have too much reserve that may be used in case of an emergency. When a country is applying the fixed rates, it meant that they are susceptible to an economic shock; one of these shocks is that the money is regulated and is therefore not too much. The market has very little money. The country have to have the largest possible reserve so that in case there is a shortage; then it can have the back up to give the currency out to balance the other items. When the money is available in the economy, the banks have a massive reserve that will help in keeping the liquid money in case there is the need to absorb it back from the economy. The other is the fact that it is impossible to run a self-sufficient economy without having the backup that can be used in case of emergency. The central bank and the other monetary bodies are aware that the currency will adjust itself. Hence, there is no need to have the larger reserves. The country like Azerbaijan can easily manage with the lower reserves.
Negative effects of Floated exchange rates to the economy of AzerbaijanEven though the free exchange rates have their advantages, there are several disadvantages that are related to this type of rates. The one that has always been known and has scared away the investors is the fact that the floating exchange rates are uncertain. This uncertainty is due to the fact that it is not known when something can brajken0in the stock market. The fact that the rates of exchange are not constant means that the trade is to stable. This also discourages the investors who keep guessing the exchange rates. These rates always change from one day to the other, and they have to be able to adjust accordingly. This is a major weakness in the country, as a country that depends massively o the exports, the country is sometimes not suing about the exchange rates that are used. Hence, the local traders do not know what they are going to get when they export their products. This can also discourage them. At the same time, it may imply a massive loss buy the traders as they are mostly unaware of what they are going to do. In order to help such situations, the companies usually buy the currency initially before they can embark on the business.
The lack of investment is the other negative effect of the floating exchange rates. The multinational companies mostly fear the exchange rates that are never constant. They do not know whether they will get the value for their money or not. This means that he investors are likely to back of leading to the country entirely depending on the internal investors. The foreign investors are important to a country like Azerbaijan as they can help in boosting the market. These foreigners of not want to buy the direct currency as they fear for the unpredictability in the market. This is the main advantage that the country had been enjoying when it was still applying the fixed exchange rates. Hence, the countries have to find the better ways of dealing with such challenges.
The other disadvantage that Azerbaijan has received from dealing with the floating rates is the fact that the constantly changing rate may encourage the building of the hit money from or within the country. These are the issues that are destabilizing a country. A country that has the possibility of inflation encourages the black marketers to head money as they know that at one point, the money will increase invalid. By that time they can release their money so that they receive the higher interests. Such situations are not good for the country as they destabilize the economy.
The other disadvantage is the lapse that is created by the government. Azerbaijan has always depended on the central bank to monitors the situations of inflation. This way, they could adjust in case there is a problem in the economy. However, when there is the floating rate, the decision is left on the market. The lack of intervention may sometimes result in a massive economic problem. As the problem builds up, the country may be so relaxed top solve it as it has limited decisions to make on the market. Such situations are most crucial as they have a massive disadvantage to the country.
ConclusionIn conclusion, whether a country decides to use the fixed or floating exchange rates, there is an advantage and a weakness that is attached to each of them. Azerbaijan have had this experience. This paper has outplayed these advantages and the various disadvantages of each. The paper has focused on Azerbaijan and what the country has gone through. The paper has used the economy of Azerbaijan that has for a long time used the fixed rates boat later on decided to use the floating exchange rates as a result of the pressure that was received from the other countries. The pressure was also building from the bodies that are interested in the economy such as the local investors. Hence, the paper examined the microscopic performance of Azerbaijan and the reasons as to why t had to change the fixed rates to the floating rates in the year 2014. The data analysis has found out that Azerbaijan has received several advantages while it was using the fixed rates. It also had numerous weakness of such regime. One of them is the stability that is provided by the exchange rates. It can also be concluded that the economy of Azerbaijan has jade its ups and downs based on the type of exchange rates policies that have been implemented by the country. The central bank have a massive role to play in the decisions about the value of the currency
. The economy have gone numerous transformations depending on the policies that are implemented. The post-soviet transitions have seen the country maintain a high level of oil contribution into the neighboring countries. The GDP of Azerbaijan grew with more than 40 percent in the year 2007. This has been the highest growth in any country at an international level. This type of growth is sometimes dangerous to a country and may not be sustained by the nation. Only equatorial guanine was better than Azerbaijan in the year 2005 as the country shoot up to twenty six percent of the GDP. However, in the year 2008, the country had its GDP fall by 10 percent and 9 percent in the year 2009. The main contributors to the economy are the large reserves of oil that gives the country a stable state. The country have a massive reserve in terms of the oil that are existing. The manat currency is the national currency that lost its value by three percent in the year 2014 against the dollar.
The different types of progress have been made to save the country from all the possible lapse by the government. Some of the causes of poor economic performances are the lack of better policies when it comes to exchanging rates. Foer a long time, the country was using the fixed exchange rates. The country benefited massively from these policies as they were the linchpins of the economy. The local producers were able to have the best rates for the local goods as the cost of production was low, and the goods are sold at higher rates at the international level. This implies that his country benefits massively from the fixed exchange rates. At the same time, the fixed exchange rate is positively influencing the economy of Azerbaijan the encouragement to investments.
RecommendationsThe country has had several steps in the decisions that they make. The country had for a long time been operating on a strict or fixed exchange rate. However, it was later on changed due to the numerous economic demands and the economic pressure from the other countries and the interested parties. Hence, the information in this thesis is important to the government and the people of Azerbaijan. This information recommends that a country have to decide to use the fixed exchange rates or the fixed exchange rates. The central banks are charged with the responsibilities of getting the best decisions and getting them right. Whether a country decides to use the fixed or the floating rate, depends on the factors that are available. From this research, the following recommendations can be made.
First, the monetary bodies in the country have the full power to evaluate the economic situation of the country. There are several ways in which a country can decide on to when to use one exchange rate over the other. Azerbaijan depended fully on the exportation of oil and the other petroleum products. This means thither depend on the situations that are outside the country as well. Hence, it is recommended that his country assesses the situation before making the best decision for the country.
The other recommendation is that there should be future research that is based on the specifications that are behind the recent change that his country has taken. The country has also taken numerous steps towards changing the status from what had served it well over the ages up to the time that it changed the exchange policies. These research should focus on the reasons behind the government and the monetary bodies giving into the demands that were laid upon it byte external factors. The country has been performing before it gave in to the pressure from the press and the other interested parties that are focusing on the turn over in the economy. Such areas have not been exploited, and hence three is the recommendations as to why the government gave in to the demands.
The other recommendation is that the country should adopt policies that can allow it to switch through the two different exchange rate policies. Each of these exchange rate types has their positive and negative impacts. Hence, there should be policies that can allow a country to apply the fixed rates when necessary. At the same time, the policies should be lifted in case there is the need to do so. In case the country has been seen to suffer from the application of on policy, there should be easier procedures that can allow it to switch between these policies. Azerbaijan suffered after changing from the fixed exchange rates to the floating exchange rates. In such a case, the country should have been allowed to switch back to the normal policies easily.
Finally, a country should be able to adjust according to the demands of the market. After the rise of the oil shortage in the year 1973, the countries have seen the benefit of having a flexible exchange rate that can help in solving every situation that arises from the demands. These kinds of situations can be managed through flexible rates that allow the country the economy to adjust to demand. Azerbaijan is one of the leading exports of oil products. The country can, therefore, benefit from such economic lapses.
Through conducting this research, several ethical considerations had to be adhered to. Ethical considerations refer to the codes of conducts that guides the writing of an academic paper. The paper has to be ethically acceptable, and the dates that are presented have to be backed up accordingly. Some of the ethical considerations include anonymity, time management, credibility and informed consent. In any research, the researcher has to follow the laid down academic guidelines that are responsible for the research to be done in the first place. Research that does not have backings lacks the credibility that it should have. Hence, a research paper has to have the backing as well as the best sources of data that can be verified. These kinds of data are best suited for the academic platform and can be approved through serious backings. In research that talks about the status of a country like Azerbaijan, there is the need to have the academic evidence that backs the claim as well as the guidelines that have been followed throughout. The following are the main ethical considerations in this research.
This is the ethical consideration that advocates for the mentioning of the sources that give the information. In most cases, the information is got from the person that is willing to give their details. These people have to be kept from the public. Some of the informatics that they gave are confidential, and it is not fair to name them. This only applies to the names of the individual people. However, the cases do not apply to the sire’s f information, especially the secondary sources. These sources have to be cited.
Time managementIn the study, time is a critical factor. This ethical consideration takes place when the researcher has an appointment with the people who are going to give the information. In such cases, the time that had been set have to be maintained accordingly. In case there are details that the respondent has to give, they have to be informed earlier. This is a critical factor in any research.
This is a major issue in the decisions of having a research. Research has to be credible. Credible research is one that has backings and one that adheres to all the academic demands. The work is also not plagiarized. The data that is collected for the research have to be credible as the work is used by numerous pekoe who Aare basing their findings on the work.
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