People will not help National Bank to keep lid on gold reserves

In November 2015, the National Bank issued government bonds in order to put a leash on dwindling gold reserves. Amid significant public debt payments in November, net sales of foreign currency by the population and enterprises have helped the National Bank to preserve the gold reserves. However, keeping in mind the deposit market reform and anticipated depreciation of the national currency, by the year-end the population will become a net buyer of currency and will not help the National Bank to maintain the gold reserves.

According to the National Bank, as of December 1^st, 2015, Belarus’ gold and currency reserves totalled USD 4 584 million, i.e. decreased by USD 82.7 million over a month. The downsize was mainly due to the revaluation of gold as part of the gold reserves so as the world market price for a troy ounce dropped from USD 1 142.35 to USD 1 061.9. As Belarus has made her international and domestic debt payments, the international reserves have decreased by USD 107 million. However, the National Bank has raised some USD 20 million by issuing government bonds worth more than USD 200 million on the domestic market.

Until August 2015, gold reserves have been supported by net sales of foreign currency by private and legal persons. In January-July 2015, the population sold USD 700 million net and legal entities – USD 200 million. In addition, Belarus raised cash on oil export duties, received loans from the Russian government and commercial banks with a total worth of USD 1 375 million. Thanks to all these proceeds, Belarus was able to make her 2015 foreign public debt payments – more than USD 3 billion. In August, the National Bank allowed the weakening of the national currency against the US Dollar by more than 10%, which had led to a sharp increase in demand for foreign currency by the population. The downward trend in interest rates on household deposits in BYR has prompted people to start converting their deposits into foreign currency and withdrawing funds from the banking system.

On November 12^th, 2015, the presidential decree No 7 launched a reform on the deposit market. Interest rates on rouble and foreign currency deposits have reduced. Thanks to the falling oil prices, which affect the RUR/USD exchange rate and weaken the Russian rouble, the Belarusian rouble would depreciate by more than projected 2%, therefore making deposits in national currency unattractive due to their unprofitability. By late December, the outflow of rouble deposits may exceed BYR 2 trillion, which would be converted into foreign currency and, most likely, withdrawn from the Belarusian banking system.

Due to frozen prices on the domestic market until mid-January 2016, legal entities may increase the amount of payments to foreign counterparts in order to reduce currency exchange rate risks for current liabilities. If the National Bank fails to receive new loans, it may announce new bond issues in order to repay domestic debt and would dip into the gold reserves to repay public debt.

Overall, the population has stopped being the net seller of foreign currency. Amid further weakening of the national currency and the lack of new loans, the National bank would be repaying public debt from Belarus’ gold reserves.