Currency Market Innovations: Belarusians, Be Prepared

Simple questions and answers.

The authorities are introducing changes in currency regulation and control. Among other things, they will be allowed to open accounts in foreign banks, buy shares and real estate abroad without the consent of the National Bank, and also introduce mandatory registration of some foreign exchange contracts. They also prescribed in what cases officials can introduce currency restrictions when the economic security of the country is threatened. The last clarification raised a lot of questions from Belarusians, tut.by writes.

Why are these innovations being introduced now? Will there be a shortage of currency in exchange offices because of this? Maybe it’s time to withdraw savings from bank accounts?

Couldn't the authorities introduce currency regulation before?

They could - and they did it when necessary. The last time was in 2014, when the need arose “to prevent the development of negative trends in the financial market”. Then a 30% levy was introduced for the purchase of currency for both enterprises and citizens who buy currency in banks. In addition, the standard for the mandatory sale of foreign exchange earnings was raised to 50% for business entities. The National Bank also introduced a 2% limit on exchange rates in exchange offices, and banks - on non-cash conversion and withdrawal of currency from cards.

After that, the regulation of the foreign exchange market was not applied on such a scale.

So why are the changes being introduced now? Are there reasons for the restrictions?

Of course, there are enough questions in the economy now: among other things, shrinking gold and foreign exchange reserves, an increase in national debt, accelerating inflation, falling average wages and real pensions, and high inflationary expectations. However, the current changes in the regulation and control of the foreign exchange market are not directly tied to the current situation in the economy, they were prepared at least in 2019, adopted in 2020, and are being introduced on July 9, 2021.

Now the authorities have clarified, concretized and prescribed in detail in what cases, who, for what period, if necessary, can introduce currency regulation. The introduction of these changes does not mean that it is now necessary to adopt restrictions in the foreign exchange market.

The document states that in the event of a threat to the country's economic security, including the stability of the financial system, if the situation cannot be resolved by other measures of economic policy, currency restrictions may be introduced. This can be done for up to one year.

And another important point: the changes introduced from July 9 are not limited to prescribing currency regulation and control. Among other things, they also introduce the ability to open accounts in foreign banks, buy shares and real estate abroad without the consent of the National Bank. That is, it is impossible to say that the document only presupposes restrictions and tightening on the foreign exchange market.

According to the expert's forecast, at least in the coming months, there are no prerequisites for any serious shocks in the economy.

And what do they say in the National Bank?

The National Bank clarifies that the 154th decree, which canceled the action of the other two, was adopted in order to “bring the legislation in the field of currency regulation in line with the requirements of rule-making, as well as exclude from it the norms that do not correspond to the new paradigm of foreign currency transactions in Belarus, enshrined in the provisions of the new edition of the Law of the Republic of Belarus “On Currency Regulation and Currency Control”. The document will come into force on July 9, it provides for the abolition of a number of existing restrictions and encumbrances when conducting currency transactions by legal entities and individuals, the regulator clarifies.

“So, with the invalidation of decree # 301, which in August 2018 virtually abolished the mandatory sale of foreign currency in Belarus, the rules governing the use of this currency regulation instrument are excluded from the legislation,” the National Bank explains. “With the invalidation of Decree #240, the right, previously granted to the National Bank, to single-handedly establish additional requirements for the procedure for carrying out current foreign exchange transactions by residents, is canceled, and the rules governing decision-making procedures in the field of currency regulation are excluded.”

Go to the bank and withdraw money from accounts?

Everyone decides for themselves how to keep their savings in order to feel comfortable.

But let us clarify that the changes in the foreign exchange market, which will come into force on July 9, in themselves are unlikely to create additional risks for the safety of your savings, which are stored in banks. In the event of unfavorable situations in the economy, which will negatively affect the foreign exchange market, the authorities may impose any restrictions without waiting for July 9. Exactly after this date, the presence of any unfavorable factors in the economy (the same significant drop in the ruble exchange rate or a noticeable reduction in gold and foreign exchange reserves) does not mean the automatic introduction of currency restrictions. That is, there are plenty of options for officials to maneuver.

Okay. And if the authorities still impose restrictions,there might be a shortage of currency?

Let us clarify right away that this is a theoretical situation.

First, it depends on what restrictions can be introduced if necessary.

Secondly, you need to consider additional conditions. For example, what will be the situation with the welfare of Belarusians (salaries, pensions, benefits, savings), will there be enough income for life or will there be a need to “eat up” savings and hand over foreign currency. And still it is necessary to take into account the demand for currency - whether there are “extra” money for its purchase.

And now they regulate exchange rates in exchange offices?

No. The National Bank is implementing a floating exchange rate regime. Experts previously said that “if the regulator does influence the dynamics of the exchange rate, then only in the short term, in order to smooth out sharp fluctuations in the exchange rate due to the action of some short-term factors and to avoid panic in the foreign exchange market as a result.”

“Currency rates in exchange offices are not regulated in any way now. Previously, there were some corridors of deviations from the official rate - no more than 2% of the rates of the National Bank. Now there is no such thing. Each bank sets the courses as it wants, - said earlier analyst Vadzim Iasub. - But at the same time, it magically turns out that these courses are more or less the same for everyone: the difference is 1-2 kapeikas. The market works here.”