Recent Devaluation and its Consequences

We were struck with sudden devaluation twice in 2015. First in February 21st when the local currency dropped in 34% (from $1 = AZN 0.78 it went up to $1 = 1.05 AZN) and second time in December 21st (from 1.05 per USD to 1.55). What followed immediately was quite normal for a country dependent on oil export. Prices in local grocery stores skyrocketed insanely and people lost all their trust in local currency. This resulted in a mass panic and rushing into the local banks and exchange points to exchange all of the savings into USD, which in its turn boosted to the rate from 1.55 up to 1.85 in almost ten days. Black market of money dealers immediately appeared and I started to recall stories from early 90's, back when I was just a kid. 

It's been more than a month now and finally things are getting back to normal. Some of the local stores and supermarkets as well as pharmacies reduced the prices of goods they sell (although it is still higher than it was before 2nd devaluation). The exchange rate is slowly falling back to 1.55 (it was already 1.58 on February 1st and the trend is still going on). 

Nevertheless there are still a few major problems:
People who had loans in USD are now faced with the issue that they must return much more than they borrowed from banks. This wouldn't have been a big deal but considering the fact that the majority receives salaries in local currency, it will indeed be a problem and not only for borrowers but also for lenders, since most of the borrowers refuse to pay back monthly loans in 1.55 rate. How it is going to result for banks? It is quite evident. Especially after panic of December when the word spread out that banks might not pay back people's deposits that they had in USD but instead in local currency with the rate of the Central Bank. When this rumor spread out, the official rate by the Central Bank was around 1.59, however not a single bank or an exchange point sold USD to people. And on black market its price went up to 1.80 and even 1.90 on weekends. As a result, lots of people rushed into banks to withdraw their deposits they had in USD and decided to keep all that money under their pillows instead, which apparently felt safer. Thus, the pre and post new year's eve mood was spoiled for everybody. 

At the moment as I've already mentioned above, things are slowly getting back to normal. The rate will probably soon drop to 1.55 again and most banks started to sell USD easily. Exchange points though are all locked due to the fact that their licences are suspended. Whether forever or not we don't know. So for now, things that we are mostly worried about are the fate of all people who signed for loans in USD (and believe me, there are thousands of them) and how their payment ability will or will not affect banks and the fate of entrepreneurs who now one by one quit businesses because they are not allowed to raise prices of the goods they bring into the country (this is probably due to government's strict control in order to prevent mass protests of people) although it is impossible not to because they do all their calculations in USD and in order to buy more USD for upcoming deals they have to raise more AZN (local currency).

There have already been hundreds of people who had to face a RIF in the companies they worked for, for a long time. Numerous shops and small business were shut down due to a huge drop in revenues. Nevertheless, it is not as bad as it seems for now. Shopping malls and cinemas are still crowded on weekends, cafes and restaurants are still serving food and drinks to their clients as usual. It is hard now to predict what will happen in the upcoming months. So far, everything is not as bad as it was predicted in December. 

Oh, and the black market of money dealers lived for only three weeks. Although maybe it didn't die, it is just waiting for its moment........

January 2016