Belarusians Buy up Currency Awaiting Denomination

Denomination of the ruble in 10 000 times will lead to escalation of inflation and devaluation risks.

Unfortunately, the news on denomination and adoption of Lukashenka's Decree No. 7 from November 11, 2015 resulted in increased devaluation expectations in the economy and, inevitably, in notable increase of demand for foreign exchange (including cashless segment of the domestic forex market), economist Aliaksandr Mukha writes on Nashe Mnenie. - It caused accelerated devaluation of the Belarusian ruble against major foreign currencies.

In addition, taking into account innovations in the deposit market (from April 1, 2016 - taxation of interest income from foreign currency deposits for a term of less than 2 years and lower rates on revocable deposits), there is a risk of outflow of population's currency deposits from Belarusian banks, it can lead to shortage of currency liquidity in the banking sector in the current situation.

Meanwhile, it is noteworthy that risks associated with the denomination have significantly materialized. Therefore, inflation accelerated rates, as well as devaluation of the Belarusian ruble after July 1 are hardly possible.

In this case it should be noted that Belarus takes the leading position in the dollarization both in the region and in the world.

As of March 1, 2016, according to BusinessForecast.by, the share of population’s currency deposits has reached 82.3%. It hits an all-time high of the independent Belarus ever! Accordingly, the share of ruble deposits of natural persons has hit an all-time low - 17.7%. Such dollarization level was not observed even in the 90s.

Actually, the share of currency savings of the Belarusian can exceed 90% because the investment portfolio of natural persons also includes foreign currency bonds of banks and enterprises, state foreign currency bonds, deposits of precious metals, precious metals weighted bullion bars, thoroughly concealed currency in cash, and monetary funds abroad.

By the way, as of March 1, 2016, natural persons, according to the data of the National bank, acquired foreign currency bonds of banks equaled to $584.2 million.

As of March 1, 2016 currency savings of the population (currency deposits, deposits in precious metals and foreign currency bonds of banks) made up $8.56 billion.

By the way, the official rate of the Belarusian ruble fell by 112.8% against the US dollar from December 31, 2013 to April 7, 2016 and equals to Br20236, while the official rate of the Russian ruble dropped by 109.4% and equals to 68.5215.

As a result, it became possible to bridge the gap in dynamics of devaluations of the Russian and Belarusian rubles against the US dollar in the period under review. Moreover, as of April 7, 2016 the devaluation rate of the Belarusian ruble against dollar already anticipates the similar one of the Russian ruble by 1.6%.