On May 28, 1918, Azerbaijan declared its independence founding the Azerbaijan Democratic Republic, the first democratic republic in the Muslim world. In its early days, the independent country commonly used Russian rubles. Starting in January 1918, Transcaucasian bonds, along with the "Baku bonds" released by the Baku City Administration and the Municipal Service of the Baku Soviet by the decision of the Baku Council of People's Commissars, were also in circulation. At that time, the Baku branch of the former State Bank of Russia continued its operations. On March 7, 1919, the Azerbaijani government resolved to establish the Azerbaijan State Bank  (the central bank). On September 16 of the same year, the Parliament of the Republic of Azerbaijan adopted the bank’s charter. On September 30, 1919, the Azerbaijan State Bank had its solemn opening and commenced operations the same day.

The "bank of banks", the Azerbaijan State Bank, supervised the operations of the country’s credit institutions and issued banknotes. During the tenure of the Democratic Republic, Azerbaijan's monetary and credit system saw a significant development. In addition to banking organizations, other credit institutions were functioning in the country. From December 1, 1919, savings banks started operating in Azerbaijan. The annual interest rate on household savings was 3.6%. At the same time, cash offices based at postal and telegraph organizations expanded their operations. The central treasury paid 200 rubles per savings book to the households every week assuming the obligation to pay the debts of the former Russian savings banks. Agricultural lending was carried out by mortgage banks, loan and savings banks, and credit unions (operated since October 1, 1919).

However, as a result of the invasion of Azerbaijan by Bolshevik Russia on April 28, 1920, although the state's independence was formally maintained (under the name of the Azerbaijan Soviet Socialist Republic), the country's monetary and credit system was destroyed. The Azerbaijan State Bank was renamed Azerbaijan People's Bank by the Order of the Financial Commissariat dated May 31, 1920. By the decision of the Revolutionary Committee of Azerbaijan dated June 9, 1920, all banks and other credit institutions were nationalized and incorporated into the People’s Bank. The banking business was brought under the state's exclusive monopolies. By the decision of the Revolutionary Committee dated August 2, 1920, the debts of all nationalized credit institutions, including the Azerbaijan State Bank up to April 28, 1920, were annulled.

The basic function of the Azerbaijan People's Bank was to issue paper money (rubles). The People's Bank, part of the Financial Commissariat, financed the national economy and was engaged in budgeting and estimation.  During the implementation of the military communism policy, the introduction of free settlements between state enterprises and departments terminated the lending operations of the People’s Bank. The role of the People's Bank as a settlement center was minimized since all settlements with the state budget were performed in line with budget financing of enterprises, and their revenues were credited to budget accounts. Shortly the nature of the People's Bank completely changed with its transformation from the Central Bank into a body serving budget operations alongside financial authorities. Naturally, the operation of two parallel agencies was not rational. At the same time, the institution called “the People's Bank” contradicted the Bolshevik dream of a non-monetary economy. By decision of the Revolutionary Committee of Azerbaijan dated August 14, 1920, the People's Bank of Azerbaijan was abolished due to "state credit administration in the previous sense" becoming no longer necessary, and the Central Budget and Settlement Department began to perform its remaining banking operations.

In late 1921, the new economic policy of the  Bolsheviks necessitated the restoration of the Central Bank. By the Decree of the Council of People's Commissars of Azerbaijan dated October 16, 1921, the Azerbaijan State Bank was established, chaired by Aliagha Hasanov, and its Charter drafted by the Financial Commissariat was adopted. The State Bank which regained its original name and function was situated in the former “Caucasus Bank” building at the Milyutinsky and Bagratinsky Streets intersection.

The Federative Union of Socialist Soviet Republics of Transcaucasia (TSFSR), comprising Azerbaijan, Georgia, and Armenia, was established on 12 March 1922. On December 30, 1922, TSFSR was included in the Union of Soviet Socialist Republics. By the Decree of the Union Council of the TSFSR dated January 10, 1923, Transcaucasia switched to a single monetary system, and the Azerbaijan State Bank’s money emission was terminated. Interestingly, at that time, there was an idea to rename the Azerbaijan State Bank as the National Bank of Azerbaijan. However, the idea was abandoned to avoid confusion among the nation. Despite this, the press often referred to the Azerbaijan State Bank as the National Bank.  This was indicating the formal independence of the republic would soon be nullified. By the decision of the Council of People's Commissars of Azerbaijan dated July 3, 1923, the Azerbaijan State Bank was renamed the Azerbaijan State Agricultural Bank, and its Central Bank functions were terminated.  The Azerbaijan State Agricultural Bank helped the development of agriculture and regulated money and commodity turnover issues. In 1923, the Baku branch of the State Bank of the USSR was established.  According to the Constitution of the USSR adopted in December 1936, Azerbaijan became part of the USSR as a "sovereign" republic. The Azerbaijani Office of the State Bank of the USSR operated from that year to the end of 1991.

Recommended literature:

1. Əliyev, Müseyib Fayaz oğlu. Bankların inkişaf istiqamətləri : monoqrafiya / M. F. Əliyev. - Bakı : Şərq-Qərb, 2011. - 120 s.
2. Məmmədov, Zahid Fərrux oğlu. Pul, kredit, banklar, qiymətli kağızlar və valyuta / Z. F. Məmmədov, Z. Zeynalov. - Bakı : Nasir, 2005. - 198 s.
3. Müasir bank sistemi və bankçılıq : monoqrafiya / A. M. Məhərrəmov [et al.] ; elmi red. Z. Ə. Səmədzadə. - Bakı : Təknur MMC, 2015. - 768 s.
4. Qurbanov, Çingiz Nəbi oğlu. Sikkələr, əskinaslar, banklar : monoqrafiya / Ç. N. Qurbanov ; elmi red. Z. Ə. Səmədzadə. - Bakı : Parlaq İmzalar, 2021. - 344 s.