Regime Loses Foreign Currency

In March, the population withdrew record amounts of currency from the system.

The authorities published a block of statistics on foreign exchange assets. According to these data, it is possible to estimate where the masses of reserve money were moving, the banki24.by website writes.

On April 7, the NBRB reported that Belarus' gold reserves in March were supported by the influx of foreign currency into the budget and the rise in gold prices. The purchase of currency at exchange auctions was not mentioned as a source of replenishment of reserves.

Indeed, gold quotes on the world market increased by almost the same amount as the "metal" assets of the National Bank. The volume of gold in the authorities' reserves in millions of troy ounces did not change during the first month of spring (1.7 million).

As for the receipt of foreign currency in the budget, these were not funds from the placement of foreign currency bonds. The Ministry of Finance reported that for the 1st quarter of 2022, the sale of such securities was equal to zero. This means that the currency to the budget most likely meant export duties and / or foreign exchange earnings of donor enterprises.

The currency component of the reserves decreased in March by USD 731 million in equivalent. This is the largest decrease in the amount of foreign exchange reserves in 19 months. A larger outflow was recorded in August 2020 — 1.382 billion USD.

Not everything is going smoothly with the fall of foreign exchange reserves. The National Bank noted that it transferred part of the funds in foreign currency to the assets that do not formally belong to the reserve.

In other words, as of April 1, a certain share of the authorities' reserves was in banks with a rating below the investment grade according to the scales of international agencies Fitch, S&P and Moody's. According to the "bare" statistics of the gold reserves, this is not visible, but it is noticeable in more complete data.

In March, the amount of deposits in the composition of foreign exchange assets not included in the reserves increased by USD 341.4 million. Here is the translation of a piece of currency past the definition of the IMF.

In March 2022, the deposits of the authorities in other national banks, the Bank for International Settlements and the IMF (by 457.2 million BYN per month) significantly lost weight. This is the largest drawdown in 29 months since October 2019.

Also, deposits in banks with a head office outside of Belarus decreased (by USD 209.4 million). Together with the outflow of deposits from national banks, the BIS and the IMF, this gave a minus of USD 666.6 million to official reserve assets.

The National Bank spoke about the net purchase of foreign currency on the stock exchange within the country following the results of January. There were no direct references to the purchase in subsequent press releases. Consequently, in February and March, the situation was reversed – foreign exchange interventions aimed at smoothing the Belarusian ruble exchange rate. At the end of March, the amount of interventions on a net basis could reach 0.38-0.39 billion USD.

In general, only about half of the decline in foreign reserves can be explained by sales to contain the exchange rate fluctuations. Up to half of the decrease is due to the withdrawal of the currency from the international definition of gold reserves.

The transfer of currency outside the official gold reserves may be associated with sanctions. This can be seen in the example of Russia: Western countries have recently blocked about half of the reserves of the Russian Federation through the Central Bank's ban on the dollar and euro.

For the reference: in June 2021, the EU sanctions were imposed on state-owned banks — Belarusbank, Belagroprombank and Belinvestbank. The EU banned businesses there from buying, selling, providing investment services and dealing in transferable securities and money market instruments with a maturity of more than 90 days, if it concerns sanctioned entities.

On March 9, the EU announced that it was disconnecting Belagroprombank, Dabrabyt Bank and the Development Bank from SWIFT, as well as prohibiting the provision of euro banknotes to Belarus and closing transactions with the National Bank of Belarus. The official estimate of the reserves that were blocked by the European Union is currently unknown.

According to operational data, from March 1 to April 1, the amount of foreign currency deposits of individuals and legal entities decreased by USD 534.6 million in equivalent. Withdrawal of currency from the system occurred at the expense of individuals — minus 628.1 million USD (the maximum outflow for 100+ months).

Thus, in March, the population withdrew record amounts of currency from the system. Banks and the NBRB had to somehow compensate for the outflow through internal leverage.

As of April 1, the net foreign assets of the National Bank fell to USD 6.531 billion in equivalent. This is less than on January 1 (7.609 billion USD), on February 1 (7.450 billion USD) and on March 1 (7.008 billion USD).

The decline in the regulator's net foreign assets in March was the largest in 19 consecutive months. A larger drop was observed at the end of August 2020 — minus 1.425 billion USD.

It is curious that in March the deposits of state administration bodies in the financial system of the Republic of Belarus increased atypically. Normally, such an increase is associated with the payment of quarterly taxes, but in March it was not the case.

In terms of dollars, the balances on deposits of the state administration increased over the month by 731.7 million USD. It cannot be ruled out that part of the indicated amount is the currency that has changed its registration, going beyond the limits of the gold reserves.