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May 12, 2022
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“Green papers will not save anyone”, but it is better to save the dollar

“Green papers will not save anyone”, but it is better to save the dollar

Photo: Global Look Press

The exchange rate of the dollar and the euro on the Moscow Exchange after the May holidays began to grow, but still remains in the “pre-crisis” corridor. The dollar costs less than 70 rubles, the euro – 73.5 rubles. Despite the easing, most of the restrictions on currency transactions remain in effect, so some experts doubt the objectivity of the current rate.

On May 11, the Trade Association for the Emerging Markets (EMTA) recommended that its members use WM/Refinitiv data to determine the ruble exchange rate from June 6 instead of Moscow Exchange indicators. The Association includes Bank of America, JP Morgan Chase, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and other financial institutions.

In its announcement, EMTA writes that the proposed changes are not mandatory, but are made only in order to “strengthen and strengthen the efficiency of the market.” However, as Bloomberg points out, since the members of the association are large international players, this practice can quickly become accepted.

Many foreign experts called the strengthening of the ruble, which, after the start of the special operation in Ukraine, at the moment reached a historical maximum – 121 rubles. per dollar – artificial. For example, according to currency strategist Wells Fargo Securities Brendan McKennawithout taking into account the measures taken by the Russian authorities, the dollar would have been at the level of 180 rubles.

Recall that the Russian authorities have obliged exporters to sell 80% of the foreign exchange earnings credited since the beginning of 2022. In March, the Central Bank established a temporary procedure for cash transactions and ordered brokers to charge a 12% commission from individuals, which was canceled on April 11. From April 18, the Central Bank allowed banks to sell cash foreign currency to the population again, but only that which came to the cash desks after April 9. Buying a dollar in banks can be more expensive than on the stock exchange, but still at the rate of February – 72-76 per unit of US currency.

As for the forecasts of the ruble exchange rate, domestic economists are now extremely cautious, since it is determined not so much by economic as by political factors. Some recommend not to rush to buy in dollars, especially since its use is limited due to sanctions (you can’t pay for purchases in foreign stores, use Visa and Mastercard cards outside of Russia, and so on).

“Ask yourself a question: you bought a currency – and what’s next? Roughly speaking, will the dollar suddenly be banned? I do not want to say that the chances of such a stalemate measure are great, on the contrary – in the foreseeable future this is extremely unlikely! But six months ago, this option seemed like a fantasy, but today we are at least discussing it. If you have free money, you can buy dollars or euros. If not, then I would recommend taking a wait-and-see attitude. Whatever one may say, rubles remain the national currency, we will live on them, ”says the economist Igor Nikolaev.

Others, on the contrary, advise using the current moment with a favorable exchange rate to replenish their currency basket, buying both dollars and euros, and converting part of these reserves into cryptocurrency.

“About the dollar still should not be forgotten. There are still many countries in the world that support the American currency and cannot refuse it. Therefore, it was always recommended to buy and store dollars – both when it cost 35 rubles, and when they gave 80-90 rubles for it. The strategy of constant dollar additional purchases is still working, ”says the financier Ivan Soldatov.

Analyst of the “Golden Mint House” Dmitry Golubovsky does not agree that the exchange rate on the Moscow Exchange is artificial, but emphasizes that it does not make sense for a simple layman to buy cash dollars, since they have lost their status as a store of value.

– Due to damage to financial logistics, that is, the difficulty of making payments in foreign currency, disconnecting from SWIFT, and so on, the ruble exchange rate has split in our country, in much the same way as the yuan exchange rate is divided. The PRC has an offshore (external) and continental (internal) yuan exchange rate, which may differ from each other. In China, this system was rebuilt specifically in the interests of the economy, while in our country it happened without prior permission.

We have an internal exchange rate linked to the balance of demand for the dollar in Russia, which is formed by the sale of export earnings on the Moscow Exchange and its purchase by importers, who restore their warehouse stocks with these dollars.

Apart from this, there is an external rate, which is also called the interbank rate or OTC. At the moment, the difference between them reached 20 rubles. But when there was a trend for the strengthening of the ruble, on the Moscow Exchange the dollar exchange rate did not fall below 66, and the offshore ruble fell to 64. This external rate reflects the demand for the ruble outside the framework of the Central Bank’s currency restrictions and is formed by the trade balance. In addition, the ruble is available for speculation outside of the Russian banking system, even on the Chicago Stock Exchange dollar/ruble futures continue to be traded.

It is logical for external agents to use an external quote, which they recommend doing. But this will not affect us in any way, because we live within the country according to the internal rate. For that matter, the dollar exchange rate for ordinary people in Russia no longer makes sense.

“SP”: – Doesn’t it make sense to use it, for example, as a currency for savings?

What are you going to do with those dollars? You can buy them on the stock exchange and put them in the bank, but you cannot withdraw them in cash or take them out of the country in large volumes, since these restrictions have not been lifted.

As for cash, at the household level, currency is needed if, for example, you are going to go abroad. But today in Dubai, Turkey or Thailand you can pay with ruble cards. In some countries like Singapore it is better to have cash with you, but this is not a place for tourism.

You can just look at these papers, but they are losing purchasing power at a rate of 8.5% per year, which is exactly how much inflation in the United States is now. If you put cash on a deposit, they will immediately become a non-cash currency, and it turns out that you overpaid a large premium for it in vain, since the cash currency is traded + 10-12% to the exchange rate. You will not find an interest rate that compensates you for this difference.

If you buy currency in anticipation of the devaluation of the ruble, then it will not be available in the near future. We have a record trade surplus. It will fall by the end of the year due to falling oil prices and restrictions on Russian exports that Europe is introducing, but it will still remain in surplus. The rate may return to the 70-80 region, but this will only cover the premium for the purchase of cash currency.

“SP”: – That is, the ruble will still weaken?

“Now we are at the peak of the trade balance, and by autumn it will fall. Accordingly, a smooth trend towards the devaluation of the ruble will begin, and the rate will return to the region of 75, possibly 80 per dollar by the end of summer or the beginning of autumn. Purely speculative, if you trade on the stock exchange, the dollar is worth buying in the expectation that you can earn 5-10 rubles. At the current rate, I would not sell either cash or non-cash dollars, but would wait for autumn and a more favorable rate. Buying cash currency makes sense only if you believe that this fall the ruble will fall to the region of 120 per dollar.

SP: Is it likely?

Such a possibility cannot be completely ruled out. But if such dynamics appears, it is better to buy futures for the dollar / ruble on the stock exchange, and not “wrappers”.

If you want to track the dynamics of a store of value, track the value of investment coins. The fact is that banking gold of Russian origin abroad is also limited in circulation. If you take it abroad, you will sell it for the price of scrap. But investment coins, Russian or foreign, are not subject to restrictions. This is a real store of value, unlike the dollar and, even more so, the euro, since inflation in the eurozone will soon be higher than in the US.

Get used to the fact that foreign currency does not matter. There is inertia among people, it is hard for them, including the Americans themselves, to admit that a green piece of paper will no longer save anyone. Inflation in the US is the highest in the last 40 years, and it will not return to the target of 2% per annum. 40 years ago, it was gold that saved from inflation, and then it set a historical growth record.

We must accept as a fact that our economy will be isolated from the global market for a long time, and look for opportunities for ruble investments, for example, deposits or corporate bonds. I don’t recommend the stock market, because you can’t buy stocks in a falling economy, our GDP recession is not over yet, we will reach the bottom of the crisis only in autumn.

But there is no need to dramatize this situation. Now the entire global market may collapse, and we may just be the first sign. The world is changing. In the event of fragmentation of the global financial system, there will be no global currency at all, but gold will remain.

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