Denomination will prompt the National Bank to a real fight against inflation in Belarus
On July 1st, 2016, Belarus will denominate the national currency at 10,000 to 1 ratio. Cash money will be replaced in order to simplify accounting and reduce cash handling costs. With this measure, the National Bank is attempting to demonstrate its determination in fighting against inflation by setting a self-restraint on further issue of money.
According to the Presidential Decree No 450 of November 4th, 2015, on July 1, 2016 the Belarusian rouble will be denominated at 10,000 to 1 ration and outstanding bank notes issued in 2000 will be replaced with bank notes issued in 2009. Currently, the minimal note is worth BYR 100 and that would correspond to 1 kopek issued in 2009. Denominated notes will be valid until January 1st, 2022.
In the past 23 years, this would be the third denomination in independent Belarus and will be the most significant. The first one was in 1994 at 10 to 1 ratio, and the second in 2000 at 1000 to 1 ratio.
Denomination should simplify accounting policies; reduce the time and costs of accounting and management. In addition, Belarus will introduce coins thus reducing the cost of replacing worn-out notes, which have the life span of about one year. Coins are replaced only every ten-fifteen years. Given equal manufacturing costs of banknotes and coins, the state will reduce its cash circulation maintenance costs.
The date when denomination takes effect is not the most convenient. As it will take place in the mid-year, there will be problems, both organizational and technical related to double accounting – in new and old banknotes. The best decision would be to launch the denomination on January 1st, 2016, yet not all required formalities will be completed by then.
The number of zeros on the banknotes is an indirect indicator of inflation levels in the country. The price index for the past 23 years totalled 5.3 million. By selecting banknotes and coins similar to Euro in value, the National Bank is attempting to reduce the impression of inflation in the country. This step may also become an internal self-restricting factor for the country’s leadership as it may restrict the money supply and contribute to a more balanced soft loans policy when dealing with state enterprises. As a result, inflation may gradually reduce to a one-digit level. The ultimate goal is 5% inflation by 2020.
In addition, denomination was needed in order to start talks over the IMF loan. The following IMF mission will stay in Belarus from November 9th to 19th, 2015. By reducing the number of zeros on the banknotes and declaring transition to inflation targeting until 2020, the authorities are sending a signal that they are ready for economic reforms and improving their negotiating position in the talks with the IMF over a new loan.
Overall, denomination will be held in order to simplify accounting and reduce the cash handling costs, as well, it aims to demonstrate commitment to economic reforms and improve Belarus’ bargaining position in talks over a potential IMF loan.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.