Central Bank of the Republic of Azerbaijan
One of the legislative acts adopted soon after Azerbaijan restored its independence – the Constitutional Law of the Republic of Azerbaijan on Grounds for Economic Independence of the Republic of Azerbaijan dated 25 May 1991, Article 14 titled ‘The Banking system and money circulation’ stipulated the legal basis for the independent banking system and circulation of the national currency in Azerbaijan, and determined the status and authorities of the National Bank. The National Bank was declared a supreme emission agency that pursued the state policy in lending, money circulation, settlements and foreign exchange relations, regulating overall performance of the banking system and discharging reserve bank functions.
A National Bank was established in the Republic of Azerbaijan by Decree of President of the Republic of Azerbaijan on ‘Establishment of the National Bank in the Republic of Azerbaijan’ dated 11 February 1992. The effective date of the Decree (12 February) is celebrated as the day of establishment of the Bank.
The first law regulating activities of the National Bank – the Law on the National Bank of the Republic of Azerbaijan was adopted on 7 August 1992 and the Resolution on Approval of the Charter of the National Bank of the Republic of Azerbaijan was passed by the Milli Mejlis of the Republic of Azerbaijan on 1 December 1992.
The national currency of the Republic of Azerbaijan – the manat was issued into circulation on 15 August 1992 and was announced the only legal tender from 1 January 1994 onward. According to Para II, Article 19 of the first Constitution of the independent Republic of Azerbaijan, adopted by the 12 November 1995 referendum, the National Bank enjoys the exceptional right of issue of monetary units into and withdrawal from circulation.
The powers of the financial markets supervisory authority defined by laws of the Republic of Azerbaijan, including licensing, regulation and supervision in the financial services market, and duties and responsibilities on protection of rights of investors and consumers of financial services were transferred to the Central Bank of the Republic of Azerbaijan with the Decree of the President of the Republic of Azerbaijan on ‘Improvement of the management of the system of regulation and supervision in the financial services market’ dated 28 November 2019.
The administrative tower of the Central Bank located at R.Behbudov Str.90, the city of Baku, was put into operation in 1998. The National Leader Heydar Aliyev and other public officials attended the solemn ceremony of the new building opening.
Photos: Opening of the CBA administrative tower, 1998
Currently, the Central Bank is guided by the third generation banking laws (second edition of the Law of the Republic of Azerbaijan on the National Bank of the Republic of Azerbaijan was adopted on 14 June 1996, and third edition on 10 December 2004).
A legal basis in place allows the Central Bank to more effectively and efficiently discharge its goals and functions, and activities across all functional areas, and determines its main functions – set and implement the monetary and exchange rate policy, organize money circulation, regulate and develop centralized interbank and other licensed payment systems, maintain and manage gold and foreign exchange reserves.
According to Decree of President of the Republic of Azerbaijan on Changes to the Nominal Value of Monetary Units and the Scale of Prices (Denomination) in the Republic of Azerbaijan dated 7 February 2005, a new manat was issued into circulation on 1 January 2006 – 1 new manat equaled to 5000 manats, AZM remained in parallel circulation with AZN in 2006 and only on 1 January 2007 the country started to use the new manat, AZN banknotes and coins were issued into circulation on a step-by-step basis.
Discharge of the country’s central bank functions stipulated review of the bank’s name and it was renamed ‘the Central Bank of the Republic of Azerbaijan’ with the enforcement of the Referendum Act of the Republic of Azerbaijan on ‘Making Additions and Amendments to the Constitution of the Republic of Azerbaijan’ dated 18 March 2009.
The authorities of the Central Bank underwent changes as part of 2016 economic and institutional reforms – under amendments to the Law of the Republic of Azerbaijan on the Central Bank of the Republic of Azerbaijan adopted on 4 March 2016, banks’ licensing, regulation and supervision were assigned to a newly established authority. Since then the Central Bank has focused on the monetary and exchange rate policy, safeguarding macroeconomic and financial stability, regulation and development of centralized interbank and other licensed payment systems and organization of cash circulation.
Historical phases of central banking in Azerbaijan
The history of central banking in Azerbaijan dates back to the beginning of the XX century. Central banking in Azerbaijan included several phases prior to the modern banking history kicked-off in 1991: the Azerbaijan People’s Republic (1918-1920); the soviet socialist era (1920-1991).
Azerbaijan declared its independence and established the first democratic republic in the Moslem world – the Azerbaijan People’s Republic on 28 May 1918. Initially, Transcaucasian bonds were widely used in the independent republic along with Russian money and Baku bonds issued to circulation by the Baku City Administration and the Municipal service of the Baku Soviet in January 1918 at the decision of the Baku Council of People’s Commissars. At the same time, the Baku branch of the former State Bank of Russia also continued its activity. The Government of the Republic of Azerbaijan took a decision on establishment of the Azerbaijan State Bank (central bank) on 7 March 1919. On 16 September of the same year the Parliament of the Republic of Azerbaijan adopted the Charter of the Azerbaijan State Bank and the Bank started functioning with the solemn opening ceremony on 30 September 1919.
The ‘bank of banks’ – the Azerbaijan State Bank supervised existing credit institutions and issued monetary units.
After the collapse of the Azerbaijan People’s Republic on 28 April 1920 the Azerbaijan State Bank was renamed the Azerbaijan People’s Bank at the order of the Finance Commissariat of the new state structure – the Azerbaijan Soviet Socialist Republic on 31 May 1920. At the decision of the Revolutionary Committee of Azerbaijan dated 9 June 1920, all banks and other credit institutions were nationalized and subordinated to the People’s Bank. The banking business was under exclusive monopoly of the state.
The basic function of the Azerbaijan People’s Bank was to issue banknotes. The People’s Bank, which was a part of Finance Commissariat, financed the national economy and was engaged in budgeting and budgetary estimates. The People’s Bank halted lending and became an institution serving budget operations along with financial bodies.
A new economic policy of the end of 1921 necessitated restoration of the central bank. The Azerbaijan State Bank was established by the decision of the Council of People’s Commissars of Azerbaijan dated 16 October 1921 with parallel adoption of its Charter.
The Federative Union of the Transcaucasian Soviet Socialist Republics (TSSR), which included Azerbaijan, Georgia and Armenia, was established on 12 March 1922. The TSSR was included to the Union of Soviet Socialist Republics on 30 December 1922. The TSSR moved to a single monetary system at the Decree of the Board of Union of the TSSR of 10 January 1923, which terminated the emission activity of the Azerbaijan State Bank. By the decree of the Council of People’s Commissariat of Azerbaijan dated 3 July 1923 the Azerbaijan State Bank was renamed the Azerbaijan State Agricultural Bank and its central banking functions were terminated. Initially, the Azerbaijan State Agricultural Bank both assisted in the development of agriculture and regulated the money circulation and commodity turnover.
The Baku Branch was established in 1923 with the establishment of the USSR State Bank. Under the Constitution of the USSR, adopted in December 1936, Azerbaijan became a part of the USSR as a ‘sovereign’ republic. The Azerbaijani Office of the USSR State Bank operated from that year to the end of 1991