Three Reasons for Soon Collapse of "Denominated" Rubles

Since autumn at least three major external factors resist the Belarusian ruble rate.

Changing attitude of Belarusians towards the purchase of foreign currency on the domestic market drove to the fact that an expected devaluation did not occur in August.

Moreover, it became clear that there are no internal reasons for this in the near future, although certain risks exist.

But everything as not simple as it may seem, there are external factors which can cause the collapse of the Belarusian ruble, Uladzimir Tarasau, observer of the Belarusian Market, writes.

There are three of them. First, this is a possible devaluation of a Russian ruble. Second, US Federal Reserve System's (US FRS) increase rate which may result into the currency rate drop of developing countries, including Belarus. Third, the deceleration of economic growth of China, which can trigger a new round of financial crisis and further decline in commodity prices.

The Russian ruble may collapse after the elections to the Duma

In recent months, the US dollar against the Russian ruble has become much less fluctuating than it used to be earlier, and barely responds to changes in oil prices on the world market. Experts hypothesize trying to explain this phenomenon, and one of them is connected with the elections to the State Duma of the Russian Federation, which are planned on 18 September. Today the Central Bank of Russia has taken some steps to stabilize the exchange rate, without falling back on currency interventions, which may be explained by a desire to preserve stability on the currency market before the elections. Therefore, there is a possibility that after the elections it will stop it and that will lead to the collapse of the ruble.

In particular, Nikolay Melnichuk, chief of the Investment Technologies Laboratory in Moscow, has calculated that the dollar may equal to 85-95 RUB/USD (including decrease in oil prices to the level of $40 per barrel) by the end of the year. Such decline in the ruble exchange rate is required to compensate the budget revenue in Russia, caused by drop in oil prices.

This, of course, is an extreme point of view, and the Russian leadership does not plan anything of thing kind, but we must remember that unexpected events occur from time to time. Russian officials did not anticipate the collapse of the ruble in 2014. Besides, it should be noted that the Russian government is now looking for ways out of the economic crisis, and who knows whether it succeeds.

The US FRS may cause the collapse of currency rates of developing countries

The presidential election in the US planned on this November can affect the Belarusian ruble. If Hillary Clinton wins, then the FRS will hold to the old soft monetary policy. That is, it will not rush to increase its rates. In case of Donald Trump's victory, the FRS may drastically change its position. It will inevitably cause the crisis in the US stock market and then crisis in the developing countries, drop of their currency, as well as commodity prices.

Belarus will suffer due to the fact that it also receives a significant part of revenue from the export of primary commodities, as well as due to the collapse of the Russian ruble.

However, the victory of Hillary Clinton carries high risks for the Belarusian ruble, as she will almost certainly undertake new economic and political measures against Russia that would strike the economy of Belarus.

Besides, no matter who becomes the US president, our economy is weak anyway. It is actually in the pre-crisis state. In his last address to clients of Societe Generale

Analyst Albert Edwards wrote that the Americal economy was on the verge of the collapse and the recession was about to come. According to him, the US economy is now close to the state which took place in 2007 before the financial crisis. This time, according to the analyst, the crisis will be caused by decrease in consumer resources.

The deceleration of economic growth of China may trigger the crisis

The onset of recession in the USA may be accelerated by possible crisis in China, which, according to some experts, is about to happen. Event of the last August prove that, when China took yuan depreciation to support its economy; that caused to drop in oil prices and currency devaluation in developing countries. Those events partially affected the devaluation of the Belarusian ruble in August 2015.

Today the leadership of China acts carefully and takes a gradual yuan depreciation. However, it may happen again. China's economy is slowing down, but the Shanghai stock exchange index has fallen by about 25% since the beginning of the year.

Adjusted for the factors mentioned above, many Russian experts concede acute fluctuations of the ruble. For example, a senior analyst Obrazovaniye Bank Vitaly Manzhos believes that due to possible perturbations in the economy and important political events the Russian ruble may equal to 60-85 RUB/USD in the IV quarter this year.

If these forecasts come true, the Belarusian ruble will also face big troubles. Therefore, it's too risky to convert foreign currency into the Belarusian one. It is necessary to wait at least for results of elections in Russia and the United States (just two months), and get a good look at China.

But it also worth remembering about domestic risks. It is worth paying attention to statements of Russian officials made in early September that Russia will not increase the volume of oil supplies to Belarus reduced earlier unless the Belarusian economy entities cover debt for gas, which currently amounts to about $300 million. The leadership of Belarus will likely have to give up, and companies will have to buy currency, which may cause the drop of the Belarusian ruble.