#16 - JRL 7210
June 4-10, 2003
Dollar No Longer Good Investment
Interviews by Sergei Ryabov
That the U.S. dollar has lately been ceding ground in this country is graphically shown by the spot currency market, where the dollar rates are well below the official ones set by the Central Bank. The reason for the dollar's slide against the ruble is the public's increasing awareness that these days it is useless to invest in the American currency. This has increased the pressure on the dollar. Indicative in this respect is the Central Bank's latest statistics, which show that the banks have started exporting larger quantities of dollars abroad while importing smaller batches of the currency. This is the first time in several years that such a situation has arisen. Does it mean that the banks are shunning the dollar? Does the bulk of the exported U.S. currency find its way into the overseas projects of the banks' clients, or does it go elsewhere?
Four financial gurus give their answers to these questions.
Kirill Tremasov, chief of Bank of Moscow's analytical department:
To my mind, foreign-currency cash is flowing out of Russia because there is little domestic demand for it. The exchange points pay 20 to 30 kopeks less for a dollar than the official rate. That's because people know that the dollar is weak and continues to fall. The investment the Bank of Moscow made in the dollar last year brought in no profit due to low demand for it.
From the macroeconomic viewpoint, the dollar's slide against the ruble can be explained by the fundamental changes taking place on the balance of payments level. First, foreign investment in this country has intensified. Second, the global economy has fallen into recession, bringing interest rates down. Taking advantage of that, Russian companies are attracting more and more foreign capital. For example, over this year's first four months alone, they placed $3.5 billion worth of Eurobonds - as much as was attracted during the whole of last year. Third, oil prices have rebounded, which have played a role too.
To my mind, these are the macroeconomic reasons for the dollar's weakness.
Pavel Busygin, vice president of Probiznesbank:
It is true that Russians have been disenchanted with the dollar despite their recent keen interest in it. They have been gradually shifting from the dollar to the ruble, and to a certain extent to the euro; in other words they are selling more and more of their dollar savings to the banks. As dollar sales by the public are a countrywide process that involves all banks in equal measure, the banks' dollar holdings have been swelling.
Formerly, the banks experienced shortages of dollars, and withdrew the U.S. currency from their correspondent accounts to supply growing demand from their clients. Today, the process appears to have reversed, with dollars going toward replenishing Russian banks' correspondent accounts with foreign banks.
Moreover, commercial banks have been selling dollars to buy rubles, which they use for active operations, including lending to Russian clients. The dollar comes under stronger and stronger pressure as it is sold in quantity. This encourages people to get rid of their dollars. In all probability, such a situation will continue until a major change takes place in the dollar/euro ratio on the world market. Analysts do not foresee such a change at the moment.
Andrei Lisyev, chief of money markets at bank Dialog-Optim:
According to our observations, people have indeed been selling more and more of their dollar savings, probably because they are discouraged by the continuing decline of the American currency, investment in which brings them no profit.
As for the banks, they are crediting their surplus cash dollars to their correspondent accounts with Western banks. This is an ordinary transfer and has nothing to do with capital operations. Russian banks are simply converting their cash dollars into noncash dollars.
Alexei Strunilin, deputy director for financial market operations at Impexbank:
Many Russian banks are transferring cash dollars to their American partners who will forward the money to the Federal Reserve System. In exchange, these Russian banks receive noncash dollars in their correspondent accounts with U.S. banks.
That does not mean, however, that our banks are shunning the dollar. It would be wrong to draw such a far-reaching conclusion. They transfer their cash dollars abroad because the people for whom they had imported enormous quantities of cash dollars no longer need the U.S. currency for saving or settlement purposes; they no longer exchange rubles for dollars in large quantities as they used to.
Our banks' transfer of cash dollars abroad is no indication of capital exports or investment abroad, even though they have indeed been sinking more money into overseas projects. Russian businessmen know full well that it will be easier to win in the competition with powerful foreign companies if they have a strong and reliable partner who is a resident of the foreign country concerned, and therefore enjoys the necessary rights and is not subject to quotas and other restrictions that apply to foreign companies.