Cold Hard Cash and Azerbaijan's Shadow Economy
Cash is a funny thing. At the very center, the sweet nougat, the heart and soul of "money" is trust - or, actually die-hard belief. In our day, most people are born into a (fiat) money economy. We sell our labor (or something we produced with our labor) in the job market for a wage or salary paid in paper bits issued and guaranteed by a government. We then turn around and purchase the product of other peoples' labor (and on and on). This, very easily taken-for-granted fixture of societies, is really breathtaking.
Millions of micro-negotiations all centered around a belief in the inherent value (within a range, of course) of money (of various sorts).
Any "thing" valued by enough people can serve as money - and this can be as few as two people (in theory). Generally, money emerges as a middle-man to compare two things that are very different. For instance, my guitar is worth 500 Oreo cookies. While it's possible for me to trade my guitar for a heart-attack's worth of chocolate sandwich cookies, I will "feel" that I'm getting a fair deal if I first convert both into pounds of barley, for instance. So that I can compare the two.
Without money of this sort, it is really difficult to "extract" profit. In high school, I exchanged a pig and a steer for my friend's 1987 Ford Bronco II. As we both felt this was a fair trade, we essentially gained things of equal value - to make that easier to understand: 1 Pig + 1 Steer = 1987 Bronco II. Though they are equal in value, for each of us they were of greater utility (as I didn't need anymore pigs, and he didn't need another vehicle). Unfortunately, I can't take that "surplus" worth to the store to purchase fuzzy dice for my new wheels. If I want fuzzy dice, I have to grow another pig. (Figuring out from where the "Wealth of Nations" sprouted, as a result of this exchange of assumed equals - was a central conundrum for early political economists).
This is, of necessity, a tertiary introduction to money. It's actually much more fascinating, complex and nuanced than the above examples let on - for further reading, I highly recommend: The Social Meaning of Money or, an oldy-but-a-goody, The Philosophy of Money
Having this incredibly liquid, "super-commodity" to compare different things becomes almost a second nature to us - we have a subconscious and emotionally charged connection to money. For this reason, one of the first things I focused on when I arrived in Azerbaijan was trying to "feel" how much the national currency was "worth." While, one of my good friends who left to volunteer in Madagascar had the pleasure of being a "Malagasy" millionare (500 USD = 1,092,705.25 MGA), in 2006 Azerbaijan issued the New Azerbaijan Manat (AZN) to curb hyper-inflation making 1 AZN worth about 1.27 USD today. So when I checked my bank account, I saw less digits.
The good side is that 1 AZN goes a heck-of-a-lot farther than a 1.27 USD back home. For instance, I can travel about 300 km for 8 AZN by bus, or I can buy 3 kg of apples for 1 AZN, or one month of texting, calling and data on my phone for 5-7 AZN. Excluding my trip to Japan, my average daily expenditure (and I know this because I commit literally every "qəpik" to spreadsheet) is 15.60 USD per day. (It's important to say, my situation should not be generalized to the rest of this country. This number also doesn't account for items I brought, care packages my wonderful friends and family have sent, or the many gifts and free meals I've received from Azerbaijanis.)
In many economies people don't actually see or handle most of their money. People get a check (or direct deposit) and drop it at the bank, then check the number in their accounts online. Some people write checks, many people swipe credit cards, and debit cards or wire money straight from their bank accounts, online with Paypal or even through their mobile phones (which, Africa's development in this arena is drawing considerable hype). In Azerbaijan, however, most people tend to keep their money in the form of cold hard cash. In fact,"the ratio of the mass of cash in circulation to the monetary base is 94 percent in Azerbaijan."
Early on in my stay in Azerbaijan, I heard that it was common for people to withdraw their entire paycheck, and heard many theories as to why. During the Soviet era people built up sizable nest eggs, but no one could withdraw that money when the Soviet Union dissolved. Years of saving, abruptly zeroed. A recent report by the Baku-based
Center for Economic and Social Development, stated that the Azerbaijani government agreed to return these deposits. However, the resulting exchange rate, according to many I have spoken with, is not enough. The example the report gives, "if a depositor had deposited 15,000 rubles at the Savings Bank of the USSR, she would receive a return of AZN 1250 [~1591 USD]."
Financially, a lot of families, more-or-less, scrape by. As one of my good friends (who is not scraping by) told me, people empty their accounts because they need the cash now, they have bills to pay. And those that can, do save. As another friend told me, every family has a special hiding place, but there isn't much to stash for long.
For all these reasons, Azerbaijan remains a fiercely "cash-in-hand" marketplace. Perhaps even more interesting is the value of small money. On more than one transaction my twenties and up have been refused for smaller money. In a rare instance, I waited in the bazaar while the attendant rustled up some change from other sellers. And, if you are planning on traveling around the cities via bus and marshrutka, you'd better have a pocketful of qəpik. Though if you are asked to pay anything less than a ten qəpik, it is a sign you are in a metropolitan area - in the "regions" sellers and shops tend to like a nice round number to their prices. (I still have a three qəpik received while in Sumqayit city six months ago.)
As an aside, though trust in paper money is strong in Azerbaijan, it can easily be called into question by a small tear. Three or four times, the seller asked me for different bills (I, of course, turned around and used the same ones elsewhere). The bills themselves are works of art, each having different colors and sizes - which is handy feature for determining what denomination the papers in your wallet are.
A strong cash economy has pros and cons from an economic development standpoint. On one hand, people are able to toss around goods and services with ease. Any home that grows fruits and vegetables can sell a few right out the door and any car can pick up a traveler and charge a fee. It's common to see small metal huts with "shoe repairer" (ayaqqabı təmirçi) painted across the top, roadside stands, or people parked on the side of the road with trunks full of pomegranates. Or, even, bathtubs with BALIQ (fish) on the side for passing cars to see.
With this, the difference between Azerbaijan and my experience in the States is more of degrees. When I lived in Colorado Springs, for instance, we always drove past a blue sedan, trunk popped and "Tamales" on cardboard - in the middle of the city. Drive up to the Flathead in Montana and it is all too common to see wooden huts selling cherries and huckleberries roadside. And, on my bike trip through Montana and Wyoming to Colorado, I stumbled into many small town grocery stores that only took cash.
From a government standpoint, a large amount of cash facilitates a "shadow economy" or an "informal economy," which is a threat because it stays "off the books" and is tricky to regulate. As a percent of GDP, Azerbaijan's informal economy is estimated to by an astonishing 60.6 per cent. The administration cannot tax the activity easily, and it is more difficult to enforce health standards. Another issue emerges regarding economic growth, specifically. In the widely accepted model of growth, economies grow because producers invest surplus capital into their enterprises to make them more efficient and productive. A farmer takes his extra cash and buys a faster tractor. Except, the farmer is more likely to get a loan from the bank to buy the tractor - this is impossible if there is no money in the bank from savings.While there are, of course, critics of this model of growth (notably, Georgescu-Roegen or more infamously, Karl Marx), the Azerbaijani government supports reducing the "cash" in the economy and encouraging leaving the money in the bank for just this reason. So that banks can loan more money to companies for "development."