National Bank fails to increase Belarusians’ ruble savings

On October 14th, the National Bank reported a registered decrease in ruble deposits in the banking system in September 2013.

Foreign currency deposits of the population in the banking system have approximated the volume of Belarus’ international reserves. When foreign currency deficit occurs in the economy, the National Bank will come up with unconventional solutions to convert part of the population’s foreign currency savings into rubles.

Broad money supply data in September 2013 showed that the population has converted some of their ruble deposits into foreign currency. Citizen’s ruble savings in the banking system have declined by BYR 538.1 billion (approximately USD 60 million), and citizens’ foreign currency savings in the banking system have increased by USD 169.1 million. The non-official restriction on interest rates for ruble deposits (maximum 45% per annum) has been lifted and banks are attempting to adjust interest rates in order to stop the outflow of ruble savings from the banks. Some banks propose up to 50% per annum interest rate on short-term deposits.

The situation in the banking system is as follows. On the one hand, international reserves continue decreasing, dropping below USD 7 billion. On the other hand, foreign currency savings reached a historical high and in fact exceeded USD 7 billion. Belarus has ‘alternative’ international reserves, which are not owned by the state and are kept in term deposits with the possibility of early withdrawal. The government considers people’s currency savings as a kind of safety cushion for the economy if the crisis occurs.

If the government restricts people’s access to their savings, the banking system’s reputation will suffer dramatically. Today the population shows high confidence in the domestic banks by increasing their foreign currency deposits. High interest rates on Belarusian ruble deposits are only a temporary solution, which has a negative impact on the currency market. Belarusbank has offered a new option for BYR deposits, where interest rate is tied to the USD exchange rate. This offer is a projection of the National Bank’s savings policy i.e. that is what the NB would like people to do. The 2011 crisis has demonstrated that this measure will not guarantee savings from being immune to devaluation. The NB could leave its attempts forcing the population to translate foreign currency savings into BYR and could start selling short-term currency securities (for one year) at a good rate. On October 2nd, 2013 Belarus Agro-Prom Bank issued currency bonds at 7% per annum worth USD 5 million, which were sold out in a matter of hours. The government could use this strategy too.

The state attempts to pick citizen’s pockets instead of solving the problem of trust in the national currency. Instead of trying to control what people do with their savings, the government should expand the available investment instruments, thus helping to solve the currency problem.