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More recently, literally in July last year, another redenomination of the ruble took place in the Republic of Belarus. It is worth noting that she was not the only one, because after the breakup Soviet Union denomination was carried out 4 times. The latest monetary reform has significantly simplified the payment system in Belarus, because before it it was almost impossible to comfortably use monetary units. Let us answer the question why the denomination of money occurred in Belarus in 2016, its causes and consequences.
What is the purpose of denomination?
If we talk in simple words What is denomination, it is actually just a change in the nominal value of the national currency. This procedure is used to facilitate the settlement system, as well as to stabilize the economic situation within the state after economic crisis or hyperinflation.
If we talk about the reasons for denomination in general, then when it is carried out, the ratio of money changes, in this case in Belarus it changed 1 to 10,000, and in Russia in 1998, the nominal value of the national currency decreased by 1000. Accordingly, after these events, the entire cost of goods and services also decreased by 10,000 times. Why is a regular denomination needed:
- to establish the national currency in relation to the world one;
- identify hidden incomes of the population;
- simplify the payment system;
- reduce the cost of issuing new banknotes.
Note that in most cases, monetary reforms are carried out during a crisis or after hyperinflation in order to restore the domestic economy.
Historical reference
As mentioned earlier, denomination was carried out in the Republic of Belarus more than once, and this was only after the collapse of the USSR. The first monetary reform was carried out in 1992, when 1 zero disappeared from the nominal value of the national currency. At that time, Belarusian rubles had original design, because they were decorated with images of animals, and people called them “bunnies.”
The second monetary reform was not long in coming, and was carried out 2 years after the first, then another zero disappeared from the national currency. But at that time, after leaving the USSR, Belarus gained independence and never carried out economic reforms, which led to inflation, so by the beginning of the new century, the need arose again to redenominate the currency, then the ratio was 1 to 1000.
The last denomination of the Belarusian ruble in 2016, as mentioned earlier, banknotes became 10,000 times smaller. One only has to think about the fact that before the reform, there were bills of 2 and 5 million Belarusian rubles in circulation on the territory of the state, and if translated into modern money, then these are 200 and 500 rubles, respectively.
Please note that today the exchange rate of the Belarusian ruble against the Russian ruble is 1 to 30.57, and the Belarusian ruble to the Russian ruble before the redenomination was approximately 0.003057 to 1.
Reasons for currency reform
Undoubtedly, the main reason for the redenomination, including in Belarus, is the rapid growth of inflation in the country. Although the government of the country explains the reform by saying that the need to reduce the number of zeros on banknotes is due to the fact that they are extremely inconvenient to handle. In general, the denomination, as the government promises, will not affect the purchasing power of goods and services and will not harm the well-being of the citizens of the republic.
Currency of Belarus before and after denomination
But it is also worth noting that inflation also takes place here, which, in fact, is associated with economic stagnation and the need to carry out internal changes. Although, according to President Lukashenko himself, the country’s economy is stable and the renewal of the national currency will not lead to devaluation, which means that the residents of the state have nothing to fear.
Please note that monetary reform in Belarus is of a technical nature and will not affect purchasing power in any way.
Progress of reform
The order on the denomination of the official currency of the Republic of Belarus was signed by the President of the Republic on November 4, 2015, and the reform itself began on July 1, 2016. To completely remove old banknotes from circulation, approximately six months have been allocated until the end of 2016. Money on the territory of Belarus was withdrawn gradually, that is, citizens could pay with both old and new banknotes, and the remaining savings could be exchanged at the bank.
The peculiarities of this reform are that before it was carried out, only paper bills would have been in circulation. And today residents of Belarus have the opportunity to use coins in denominations of 10, 20, 50 kopecks, 1 and 2 rubles. Among paper bills banknotes in denominations of 5,10, 20, 50, 100, 200 and 500 rubles today appearance banknotes decorate the cities of Belarus.
It is noteworthy that the currency reform has been planned since 2009. It was then that the development of the design of new banknotes began. The official version of the denomination appeared in 2014, it was voiced by President Lukashenko during an interview with Belarusian journalists.
Consequences of the reform
Denomination in Belarus 2016 did not bring any negative consequences for the population. First of all, it should be noted that this monetary reform was indeed necessary primarily for the common population. In addition, accountants and employees received great benefits from it financial sector. In addition, President Lukashenko himself promised to “tear off the head of everyone who raises prices for goods,” which means that the population of Belarus only benefits from the reform.
Let's summarize that the monetary reform in Belarus is just changes that are of a technical nature and are not related to the internal economic crisis, although the inflation rate in the country exceeds acceptable limits and amounts to 15-18% per year. In any case, the reduction of zeros in the denomination of the monetary unit has made life much easier for Belarusians. After all, just imagine, in order to accomplish any large purchase residents of the country literally had to carry a bag with money with them, because, as mentioned earlier, the exchange rate of the Belarusian ruble to the ruble before the redenomination was 0.003057 to 1.
The Russian authorities allow the devaluation of the Russian ruble during the year to 68 RUR. rub. for 1 dollar. How much in this case can the exchange rate of the Belarusian ruble decrease?
Considering that the official exchange rate of the Russian ruble to the US dollar on May 20 current year amounted to RUR 57.1602. rub. for 1 dollar, the expected devaluation of the Russian ruble is estimated at about 19%. It is possible that the devaluation of the Russian ruble, among other things, will be associated with an increase in the money supply in order to finance infrastructure projects in the territory Far East Russia.
It should be noted that the devaluation of the Russian ruble could lead to a fall in the export of Belarusian goods and services to Russia while simultaneously increasing the import of Russian goods and services to Belarus. As a consequence, in this case the balance foreign trade with Russia could worsen with all the ensuing negative consequences.
On the other hand, in the current situation, the real effective exchange rate of the Belarusian ruble to the Russian ruble, according to our estimates, looks underestimated. Therefore, with a 19% devaluation of the Russian ruble against the US dollar, the devaluation of the Belarusian ruble against the US currency under the base scenario could be about 12% (other things being equal).
In this case, the undervalued real effective exchange rate of the national currency is used to stimulate exports and simultaneously limit imports. By the way, according to Belstat, the export of Belarusian goods to Russia in the first quarter of 2017 increased compared to the same period previous year by 37.9% to $2.813 billion.
At the same time, the main risks for the stability of the domestic foreign exchange market of Belarus are associated with other external and internal factors. These include the expected decrease in the supply of foreign currency from the population, the continuation of significant payments on the external debt of residents of Belarus in the conditions chronic failure gold and foreign exchange reserves, decline interest rates on ruble instruments, increasing social stratification in society, etc.
According to the National Bank of Belarus, in January 2016 - April 2017, individuals sold on a net basis $2.611 billion(including non-cash transactions). According to BusinessForecast.by estimates, the population in January 2016 - April 2017 was forced to part with at least a third of previously accumulated foreign currency savings in an unorganized form. As a result, if such rates are maintained, unorganized foreign currency savings individuals hypothetically could end in less than two years (all other things being equal).
In turn, the schedule of upcoming payments on the gross external debt of residents of Belarus as of January 1, 2017 includes payments on the principal debt and interest for the total amount $45.651 billion
In 2017, payments by residents of Belarus on external debt are estimated at $17.168 billion(including debt refinancing operations). As of January 1, 2017, the gold and foreign exchange reserves of Belarus amounted to $4.927 billion, covering only 28,7% upcoming payments on external debt. While according to the Guidotti criterion, gold and foreign exchange reserves must cover at least 100% of the upcoming annual payments on the total external debt of the country's residents (government, central bank, enterprises, banks).
As a result, in the case of a negative scenario, the rate of devaluation of the Belarusian ruble against the US dollar in the coming year may exceed the expected rate of devaluation of the Russian ruble against the US currency by at least several percentage points. Accordingly, in this case, the real effective exchange rate of the Belarusian ruble against the Russian ruble will continue to be underestimated due to the inability of the central bank of Belarus to provide support to the national currency due to the insufficiency of the country’s gold and foreign exchange reserves.
Devaluation of the Belarusian ruble- the exchange rate against the dollar decreased by 56.3% (05/23/2011).
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There is no money, no government subsidies - the economy is starting to burst at the seams. Needed!..
Currency crisis in Belarus. What to do?
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What has already been observed - (May 24, 2011 - “Black Tuesday”, the National Bank of Belarus set the national currency rate at 4930 “bunny” per ) - as a result, Belarusians have become twice as poor.
Basic measures to unify the exchange rate of the national currency of Belarus:
- bring down increased demand in the country;
- after receiving a stabilization loan from the EurAsEC, form the exchange rate of the Belarusian ruble based on supply and demand.
Devaluing the “bunny” in order to reduce the foreign trade deficit is a painful but necessary measure. On the other hand, Belarus will now rapidly integrate into