Azerbaijan – History of the National Bank

1. National Bank of Azerbaijan

October 18, 1991, state independence of Azerbaijan was regained. It is interesting that legal basis for establishment of banking system of independent Azerbaijan Republic, including National Bank were formed a short while before. Thus Article 14 of the Constitution Act ON Basis of economic independence of Azerbaijan Republic, dated May 25, 1991, which was called Banking system and money turnover included these issues as a whole. This article alongside with stipulation of independence banking system and turnover of national monetary unit of Azerbaijan, also established the status and authorities of the National Bank of Azerbaijan. Thus, the National Bank was declared a supreme emission agency which carries out state policy in the sphere of credit, money turnover, settlements and currency relations, regulates activity of banking system as a whole and fulfills duties of reserve bank.

Alongside with this, the National Bank was still not established during that period. At the same time, in accordance with the Law of the Azerbaijan Republic On Extra measures on stabilizing economic and socio-political life of the Republic, dated October 8, 1991, regulation of budget and finance, as well as establishment and liquidation of supreme state authorities were defined by the Decree of the President of the Azerbaijan Republic. In accordance with this particular Law, as well as the aforesaid Constitutional Law, pursuant the Decree of the President of the Azerbaijan Republic On Establishment of the National Bank of the Azerbaijan Republic, dated February 1992, the National Bank of the Azerbaijan Republic was established on the basis of the State Bank, Industrial-construction Bank of the former USSR, banks of Azerbaijan Republic of Agro-Industrial Bank of the USSR.

As early as August 7, 1992, alongside with the Law of the Azerbaijan Republic On banks and banking activity in the Azerbaijan Republic, was adopted the Law On the National Bank of Azerbaijan. August 15 of the same year equally with ruble national currency of the Azerbaijan Republic manat was issued. December 1, 1992 Resolution On Approval of the Charter of the National Bank of the Azerbaijan Republic was passed by the Milli Mejlis of the Azerbaijan Republic. Such legislative acts, which were critical for banking activity laid the foundation of national bank law and facilitated adaptation of banking activity to a new social-economic conditions. The aforesaid legislative acts determined the National Bank as the supreme state bank, which has exclusive rights of banknotes issue and fulfills the function of reserve system. At the same time, the National Bank was granted regulatory and controlling authorities over the banking system.

Effective January 1, 1994 manat was declared the only means of payment of the country. Paragraph II of the Article 19 of the first Constitution of independent Azerbaijan Republic, which was adopted in a referendum, held on November 12, 1995 endorsed once again that the right of issue of banknotes and withdrawal from circulation belongs only to the National Bank. At the same time, this paragraph stipulates that the National Bank is in the exclusive ownership of state. Adoption of the new constitution foretokened beginning of a qualitatively new stage in building of the constitutional state in Azerbaijan. This is why innovations in the sphere of banking legislation was as necessary as in other spheres.

Therefore, the Laws On the National Bank of the Azerbaijan Republic dated June 10, 1996 and Banks and banking activity in the Azerbaijan Republic dated June 14 were adopted in a revised form. New bank laws promoted the banking system of the republic to approach progressive world banking experience and establishment of reliable credi organizations. Thus, the corresponding Law on the National Bank stipulates means and methods of pursue of the state monetary-credit policy, which is one of its major functions. This envisages market transactions, interference to currency market, restriction of bank transactions and other measures.

Alongside with this, improvement of bank legislation and in general, bank reforms were not suspended even for a while and presently this process goes on.

 2. State Bank of Azerbaijan

As a result of the revolution, which took place in February, 1917, the state power passed to the Provisional Government. The State Bank continued emission of state credit notes (ruble) as before (simply Nikolayevkas were replaced by Kerenkas). As a result of the following revolution, which took place in October, 1917, bolsheviks captured the power. Taking the opportunity, colonies, including Azerbaijan, were seeking independence. But with the support of Russian bolsheviks, Council of Baku Peoples` Commissars was established in early 1918. With the objectives of meeting increased demand in banknotes in the sphere of commodity exchange, from January 1918, paper money, which were called Baku bons were put to circulation by Baku city municipality and city economy of Baku Council.

On May 28, 1918, Azerbaijan declared its independence and established the first democratic republic in the Moslem world- Azerbaijan Peoples` Republic. Initially alongside with Russian money and Baku bon Transcaucasus bons were also widely used in this independent republic. At the same time Baku branch of the former State Bank of Russia also continued its activity. Already on March 7, 1919, it was approved to establish the State Bank (central bank) of the Azerbaijan Republic by the decision of the Government of the Azerbaijan Republic and Ministry of Finance was charged with working out its Charter. September 16, of the said year, the Charter of the State Bank of Azerbaijan, which was prepared by the credit department of the Ministry of Finance was approved by the Parliament of the Azerbaijan republic. September 30, 1919 was the inauguration and operation of the State Bank of Azerbaijan. Building of the head office of the State Bank located in Gorchekovski street, Baku (now H. Z. Taghiyev street). Mark Mikhaylovich Abeguz, Deputy Finance Minister was an Acting Chairman of the State Bank. Hasanbey Fattahov was appointed deputy chairman. November 9, 1919 was opened Ganja Branch of the State Bank. Later branches of the State Bank were established in other districts as well.Major objectives of the State Bank of Azerbaijan were to simplify money turnover, assist trade, industry and agriculture, as well as strengthen the monetary system. Authorized (main) capital stock of the State Bank was 50000000 rubles. It was stipulated that such capital would annually be increased at the expense of 10% of the annual income. Authorized capital had to be formed at the expense of resources in an amount of 20% of annual income, later 10% of income until it had reached to the amount of 10000000 rubles. Reserves fund had to be formed for coverage of losses formed as per Bank transactions. In case of insufficiency of this capital, main assets were to be used. At its turn insufficient portion of the main assets was to be covered at the expense of state budget. At the same time in case of insufficiency of income for maintenance of the Bank it was stipulated to establish a special reserves fund. Such fund was to be established at the expenses of payments in an amount of 5% of annual income.

Emission authorization of bank notes belonged to the State Bank. In general, banknotes in an amount of 2 billion 345 million rubles were emitted in Azerbaijan during the Democratic Republic. To provide convertibility of national currency, the Government established exchange rate of Baku bon with other currencies as follows:

1000 rubles of “Kerenka” – 1850 bon (rubles)
500 rubles of Romanovka – 1600 bon
100 rubles of Romanovka – 350 bon
English pound – 310-315 bon
1 US Dollar – 280 bon
1 French frank- 8-10 bon
1 Italian lira – 7 bon
1 Iran tuman – 125-130 bon
1 Turkish golden lira – 390 bon
1 Russian gold piece (tchervonets)

State Bank of Azerbaijan, which was the bank of banks controlled over the credit organization operating in the country. In general, money-credit system during the Democratic Republic developed to great extent. Alongside with banking organizations other credit institutions also operated in the country. Thus, effective December 1, 1919 saving banks began to operate in Azerbaijan. Annual interest rate as per population savings was 3,6%. At the same time postal-telegraph pay desks, which operated on the bases of postal-telegraph organizations, also extended their activities. They belonged to central saving banks, which were in the jurisdiction of 15 treasuries. Central pay desks undertook reimbursement of former Russian saving banks debts and weekly paid 200 rubles to population as per bankbook. Mortgage banks, special loan-saving pay desks and loan-savings unions (they operated from October 1, 1919) were involved in crediting of agriculture.

But as a result of occupation of Azerbaijan by bolshevik Russia on April 28, 1920, existing financial-credit system of the country was destroyed, although state independence was formally retained (with the name of Azerbaijan Soviet Socialist Republic). By the order of the Finance Commissariat dated 31 May, 1920, the State Bank of Azerbaijan was renamed to Azerbaijan Peoples` Bank (employees remained in their positions). With the decision of Revolutionary Committee of Azerbaijan dated June 9, 1920, all banks and other credit organizations were nationalized and associated with the Peoples` Bank. Thus, bank business was past to exclusive monopoly of the state. With the decision of the Revolutionary Committee, dated August 2, 1920, all debts of all nationalized credit organizations, including State Bank of Azerbaijan, which was formed before April 28, 1920, were liquidated.

Basic function of the Azerbaijan Peoples` Bank was to emit paper money (rubles). Peoples` Bank, which was the part of the Finance Commissariat financed the public economy and was engaged in budgetary estimate. Application of non-monetary operations between state enterprises and agencies at the time of pursue of military communism, put an end to credit transactions of the Peoples` Bank. Role of the Peoples` Bank as a settlement center was reduced to minimum, because as per the state budget all transactions are carried out according to budget and their incomes were allocated to the budget accounts. Thus, essence of the Peoples` Bank was completely changed. Alongside with the financial bodies, it was changed to a body serving budget transactions. It was natural that operation of two parallel structures was inexpedient. At the same time, existence of an organization named Peoples` Bank was opposed to the dream on non-monetary economy, which bolsheviks wished to build then. Therefore with the decision of the Revolutionary Committee of Azerbaijan, dated August 14, 1920, as there was no need “in the state credit agency in its previous meaning” and its nothing but in all bank transactions were accomplished by the Central Budget Department.

But at the end of 1920 the bolsheviks were obliged to pursue a new economic policy. In this view it was necessary to restore the activity of the central bank. With the decision of the Board of the Peoples Commissariat of Azerbaijan, dated October 16, 1921, the State Bank was established headed by Aliagha Hasanov and its charter, which was prepared by the Commissariat of Finance, was approved. The State Bank, which restored both its activity and name, was located in the building of former Bank of Caucasus in the corner of Milyutinski and Bagratinski streets.

On March 12, 1922 Federative Union of the Transcaucasus Soviet Socialist Republics (TSSR), which included Azerbaijan, Georgia and Armenia, was established. On December 30, 1922, TSSR was included in the Union of the Soviet Socialist Republics. With the decree of the Board of Union of the TSSR dated January 10, 1923, the Transcaucasus moved to a single monetary system and thus was terminated emission activity of the State Bank of Azerbaijan. It is interesting that during that time it was proposed to call the State Bank of Azerbaijan as the National Bank of Azerbaijan. But not to bewilder the population, this idea was abandoned. Nevertheless, press (for instance, Baki fahlasi newspaper) often called the State Banks as National Banks. Actually this foretokened that the formal independence of the republic would also be nullified. In deed with the decree of the Council of the Peoples` Commissariat of Azerbaijan, dated July 3, 1923, the State Bank of Azerbaijan was named the State Agricultural Bank of Azerbaijan and its functions of a central bank were terminated. It is true that, initially the State Agricultural Bank of Azerbaijan alongside with supporting development of agriculture also regulated issues of commodity turnover.

In view of establishment of the State Bank of the USSR, was established its Baku Branch. In accordance with the Constitution of the USSR, adopted in December 1936, Azerbaijan was part of the USSR as a “sovereign” republic. Afterwards Azerbaijan Department of the National Bank of the USSR, which existed by the end of 1991, carried out its activity.

3. Money turnover within Azerbaijan

History of Azerbaijan statehood goes beyond the ancient times. One of the factors proving ancient Azerbaijan statehood is discovery of local coins, which were minted in Albania (Caucasus Albania) and Atropatena, which existed within Azerbaijan. First money found within Azerbaijan are related to the times of Alexander of Macedonia (Alexander). As early as the second half of the III century B.C. albans and atropatenians, which were involved in world trade, to meet the demand of internal market began to mint coins similar to imported coins of Alexander. Silver dirhams (drahmas), with “AT” and “ATR” monograms related to this and later periods (numismatists read them as Atropat and Atropatena) have been widely discovered in Azerbaijan, Georgia and Dagestan. Scientists suppose that such coins were minted at mints in Gabala, Ardabil and other cities. At the same time circulation of money similar to silver coins of Selevki in Albania encounters in II-I centuries B.C.

At the second half of the III century most part of the Azerbaijan territory was invaded by the Sasanids empire. Along with this already in VI-VII centuries Sasani rulers minted their silver coins in Nakhchivan. But at that period the Arabian Khilafet, which defeated Sasanids, conquered Azerbaijan as well. At the initial period of Khilafet history (VII-IX centuries) money circulation, especially minting of golden and copper coins were centralized. At the same time silver coins of the Khilafet were also minted in Azerbaijan.

Feudal breakdown, which started as a consequence of weakening of the Khilafet and Seljuq marches, caused emergence of a number of small states, which were actually independent. Coins (usually silver coins) of such states, which were under vassal independence of other ruler, also engraved the name of overlord. Beginning from the XI Century, one side of the coins, which were minted by Shirvanshahlar in Shamakhy engraved Abbasi khalif, which was the religious leader and Saljuq soltan as an overlord, the other side engraved the name of Shirvanshah. Nevertheless, accompanying of Shirvanshahlar names with mighty nick-names show their independence as well-known rulers of a big feudal state. Similarly, Saji in Barda, Salaris in Ardabil, Shaddadilar in Ganja, Ravvadilar in Tabriz minted their silver coins at that period. In XII-XIII centuries copper coins of Saljuq and Atabaylar states were also minted in Azerbaijan.

As a consequence of Mongol marches taken place in XII century, Azerbaijan became the center of Hulakilar (Elkhanilar) state, which was considered the fifth Mongol rule.

Silver coins of Hulaki state were mainly minted in Nakhchivan and Barda. Different attitude of West and East to minting of coins at that time is obviously seen in the example of Hulaki state. It is known that, in the medieval centuries almost each feudal had its own mint and they sacrificed national interests for short term profits. In eastern countries minting of coin alongside with preaching was considered symbol of state. This is why although Hulaki state was actually governed by Chobani feudal lords, minting of coins and preaching was carried out not on their behalf, but on behalf of Hulaki princes.

In the XIV century Azerbaijan became the center of Jalairi state, which conquered Hulaki state. Jalairis minted their coins basically in Baku, Shabran, Gargar and Garaaghaj. At the end of the XVI century Azerbaijan suffered from attacks of Red Orda and Teymuri states, which replaced each other. At the same time the invaders did not forget to pay special attention to minting of coins. Thus, for instance, khan of Red Orda Janibey, which conquered Tabriz in 1356 during a very short time, minted coins on its behalf and by specification of the corresponding year. But as a final results Teymurilar and Qaraqoyunlular, which occupied Azerbaijan became winners of these wars at the beginning of the XV century. Initially Garagoyunlular minted silver coins in the name of Teymuri rulers in Astara. Later such silver coins were minted in the name Garagoyunlular rulers in Urm, which already were independent. Soon in the second half of the XV century as a result of fall of Garagoyunlular state, emerged the state of Aghgoyunlular. Aghgoyunlu sultans (rulers) basically minted silver coins (for instance in Arzinjan). It should be noted that Shirvanshahlar, which ran through last period of independence, also minted silver coins in Shamakhy.

Early XV century Azerbaijan became the center of the newly established Safavid states. Coins minted by Safavid rulers in various times and places (Tabriz, Ganja, Shamakhy, Ordubad, Nakhchivan) were different: golden ashrafi, two shahi silver coins, silver muhammadi, silver abbasi, silver penjshahi, etc. Safavid states closely traded with North and Central European states. This is specifically confirmed by numismatic materials. For example, coins of the Mirik coin treasure, which was discovered in Azerbaijan, consists of Western European talers, minted in 1541-1572. Coins of the treasure were very different as per their contents: there were coins minted in Germany (Shvabiya, Bohemia, Bavaria, Friziya, Saksonia, Koln, Dresden, Nurnberg, Hamburg, etc.), Austria, Switzerland (Zurich), Belgium (Lyoj) and minted in principalities of other countries.

At the XVIII century as a result of weakening of the Safavids state, Azerbaijan was basically divided into numerous secluded khanates. Naturally there were no a single monetary system that time. Almost every big city minted coin of special copper and silver coins of each khan: for instance copper fulus, silver and half abbasi in Sheki (Sheki khanat), silver abbasi in Shusha (Garabagh khanate), Guba (Guba khanate), Darband (Darband khanate), Nakhchivan (Nakhchivan khanate) and Tabriz (Tabriz khanate), silver abbasi and half abbasi, copper fulus in Ganja (Ganja khanate), copper fulus in Baku (Baku khanate), etc. , value of such money was unstable, money of each khanate was nearly used as a basic money only within its territory, in other territories it significantly was losing its value. As a result of anarchy in khanates, Turkmenchay treaty, signed in 1828 between Russia and Iran divided Azerbaijan into two parts: North Azerbaijan became the colony of Russia, South Azerbaijan became the colony of Iran.

Annexation of Azerbaijan to Russian empire coincided with the latter entering capitalism. Thus National Bank of the Russian Empire was established in 1860 and a year later was opened its Baku branch. Basic aims of the branch were to increase commodity turnover and accelerate development of credit system. Baku branch of the National Bank accomplished transactions on registration of promissory notes, issue of mortgage credits and other transactions. During that time alongside with coins state treasury notes, called rubl was widely used within the empire.

Already at the end of the XIX century, in comparison with other regions of the Caucasus, Azerbaijan had the most developed credit-banking system peculiar for capitalist formation. At the early XX`s Azerbaijan credit system included about 200 credit organizations. Among them were 28 branches of commercial credit banks, 7 mortgage banks, 8 mutual credit societies, 5 banking agencies, 135 small banking agencies and great number of saving banks. During this period in Azerbaijan was observed merger of bank and industrial (oil industry) capital. For example, in 1917, 15 Russian and foreign banks participated in oil projects which was put into life by Nobel brothers.

Source: Central Bank of the Republic of Azerbaijan