Issue of 200 manat banknotes not to affect inflation expectations, says CBA head

The release of 200 manat banknotes is aimed at facilitating monetary circulation and reducing the government expenditure on the money printing, the Chairman of the Central Bank of Azerbaijan Elman Rustamov said on June 14 at a press-conference.

"The cost of money printing does not depend on the denomination, but on the quantity of bills. Indeed, the banknote of 200 manat is larger in size than the banknote of 100 manat, and the cost of its production may exceed the cost of printing 100 manat banknotes by 5-10 percent. But, when we order one 200 manat bill instead of two 100 manat bills, the cost savings is about 80-90 percent," Rustamov said.

The head of the CBA noted that, the issue of a new banknotes will not affect the macroeconomic dynamics and inflation expectations.

Referring to the volume of newly issued banknotes, Rustamov noted that the banknotes are already in circulation and their volume is unlimited.

"Any bank can order the necessary amount of banknotes. As for the tariffs, they are slightly higher for a banknotes of 200 manat compared to the tariffs set for banknotes of 50 and 100 manat. Obviously, the country had a large concentration of banknotes of 50 manat and 100 manat. So, we have established a slightly higher tariff rate for a banknote of 200 in order to prevent this concentration from spreading onto these banknotes at once. So, the tariff rate is 0.2 percent for a banknote of 200 manat, and 0.1 percent for 50 and 100 manat," the head of the CBA said.

Rustamov added that the country needs to gradually reduce cash turnover.

"There are three groups of countries in the world with high, medium and low cash turnover. We should gradually move to the group of countries with average cash turnover, where the share of cash in the total cash turnover is 28-30 percent. This is our first priority. The strategic goal is to achieve a single-digit share [up to 10 percent] of cash in money turnover," Rustamov said.

According to the CBA data, the cash in Azerbaijan in manat terms (M0) fell to 11-month minimum of 6,919.3 million manats at the end of April 2018. Such a sharp decline can be explained by the fact that the Central Bank started to put into circulation a new 200-manat banknote in June. Usually, before putting a new bill into circulation, a part of the funds in circulation is withdrawn. This is necessary to avoid possible negative consequences in the form of inflation or devaluation.

At the same time, the cash money in circulation in manat decreased by 484.9 million manats or 6.5 percent in the country. Usually, the monthly change in the M0 indicator in Azerbaijan varies between 100 and 200 million manats.

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