Belarus officially acknowledges devaluation of its currency

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April 22, 2016 19:04

The devaluation of the Russian ruble and some statements made by the Belarusian authorities have led to panic on Belarus’ foreign currency market. In order to mask devaluation, a 30% tax on buying the foreign currency has been introduced until February 1st. However, the National Bank has not waited until February, and instead introduced a unified buying rate for foreign currency. With the help of this new method of price assessment, the National Bank is trying to minimize the losses of gold and forex reserves. This might lead to the Belarusian ruble further devaluing.

December is the month when expectations of devaluation are higher among Belarusians. This year, concerns were boosted by the situation with the Russian ruble. Statements made by the Belarusian authorities on the stability of the Belarusian ruble’s exchange rate had the opposite to intended effect. Due to the steep upsurge in demand for the foreign currency, the general public has purchased more than $180 million on net basis. Another impact factor which influenced the fall in gold and forex reserves was a significant amount of foreign debt repayments in December. The total amount of gold and forex reserves has fallen to the critical point of $5 billion. 

In order to mask the devaluation of currency starting from December 19th the Belarusian authorities have introduced a 30% tax on the purchase of foreign currency on the exchange market. This measure has allowed the government to reach the end of 2014 without significantly adjusting the budget. By gradually lowering the tax to 20% by December 30th, to 10% by January 5th, and cancelling the tax on January 8th, and with the official exchange rate of the Belarusian ruble growing, the Belarusian authorities have carried out the devaluation of the national currency. The Belarusian ruble has fallen by 26.4% in respect to the US dollar by January 8th, 2015 in comparison to December 19th, 2014. 

Because of the more significant fall of the exchange rate of the Russian ruble to the US dollar, this devaluation is not sufficient. After the change of the rate, trading on the exchange market continues with the many-fold excess of demand for foreign currency over the current supply. At a time when there is a lack of secure income of lending resources, the National Bank has changed its methods for assessing the currency exchange rate. The ratio of foreign currency in the reserves was changed with the share of the Russian ruble growing which might lead to the Belarusian ruble being further anchored to the currency of Belarus’ main export partner. The nonsterilized interventions will be carried out to some extent, without the use of gold and forex reserves. Such an approach allows for larger flexibility of the Belarusian ruble’s exchange rate. However, it also increases the risks of a repeated increase in the national currency’s exchange rate. 

In such a manner, Belarus has failed to avoid devaluation because of its dependence on its main trade partners’ currencies. The devaluation which was carried out by the Belarusian authorities is insufficient, and the 2011 scenario of a gradual devaluation could repeat.

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