In mid-March, 1 dollar was worth 120 rubles, but now the value is 62 rubles. Many of our readers are worried about what's happening and what to do if they want to save and grow their money.
Is it a good idea to buy dollars now, because the value may rise to 120 or more again? Or should you sell them quickly, because the ruble might strengthen further?
There's an old joke about two financial analysts. One asks the other, "What's going on?" The second replies, "I can explain." The first insists, "Can you just tell me what's going on?!"
A stronger ruble is not beneficial for anyone.
First, it's important to know that 62 rubles per dollar is the official rate, but the real rate is much higher, around 71 to 78 rubles in Moscow. However, buying dollars at that rate is also challenging.
In March, the Central Bank imposed restrictions on cash currency, but they have been gradually easing. Initially, banks were not allowed to sell cash to citizens until a temporary order expired. However, from April 18, this changed, and credit organizations were permitted to sell cash to Russians again.
On May 20, the Central Bank further relaxed the existing measures, allowing banks to sell almost any cash foreign currency to citizens without restrictions. However, there are still restrictions on dollars and euros, which are expected to continue until September 9th. Additionally, the current strengthening of the ruble is seen as a political move and does not benefit anyone economically. According to the press secretary of the President of the Russian Federation, Dmitry Peskov, this issue is constantly discussed at high-level economic meetings.
Why did the ruble strengthen? It's partly due to the currency restrictions imposed by the Central Bank and also because of reduced imports in Russia. The dollar is losing value because there is less demand for it, largely due to sanctions and logistical issues. In April, imports dropped by 30%, the largest monthly decline in modern Russian history. Additionally, the number of Russian tourists traveling to dollar-denominated countries has significantly decreased.
On the other hand, Russia continues to export energy resources, generating foreign currency income for the budget. Entrepreneur and public figure Dmitry Potapenko argues that the Russian authorities treat the ruble as a plaything, regardless of the real value of the dollar and oil. He suggests that if the oil price were considered, the dollar exchange rate in Russia would be around 55 rubles.
However, a too strong ruble harms the Russian budget more than it helps. The problem lies in the exchange rate. The budget requires rubles, but the current rate means the state receives less income. The budget's balance is at 71 rubles per dollar, but now it's 62 rubles. This means less revenue for the state. Additionally, the state needs a lot of rubles for a costly operation in Ukraine. The current ruble strengthening is temporary, and the dollar will likely regain its position. The Russian budget is in rubles, so an excessive strengthening of the currency won't be allowed. Official experts suggest the ideal exchange rate is 75-80 rubles per dollar.
There are differing views. State Duma deputy Oksana Dmitrieva, Doctor of Economics, believes the ruble should be kept at 80-85 rubles for equilibrium.
There's an opinion that the exchange rate is artificially adjusted and the ruble will collapse if barriers are removed. How low will it collapse?
The Ministry of Economic Development predicts the dollar will cost 73.5 rubles by year-end, with an average rate of 76.7 rubles in 2022. By December, the dollar and euro exchange rates will rise to 76.4 and 82.5 rubles, respectively.
Experts have varying predictions, ranging from 83-100 rubles to as high as 110 rubles. The head of the global research department at Otkritie Research, Mikhail Shulgin, believes the ruble will gradually return to a wide range from 95 to 105 rubles per dollar.
Jan Art, a candidate of Economic Sciences and editor-in-chief of Finversia.ru, sarcastically discusses the topic, mentioning the Bank of Russia's reduction of the key rate from 14% to 11%.
A turning point has come: the ruble reversed, moving from 60 to 62–65 rubles per dollar.
There are different scenarios and wishes. Some believe the ruble's recent decline is temporary, while others think it will continue to fall to new lows.
Economists understand that 62-65 rubles per dollar is not enough for the budget's needs, and the ruble will have to be lowered further.
The question then becomes: how to reduce and by how much?
If you decrease the value of the ruble to levels below 70 rubles per dollar, not only will the exchange rate be affected, but the mood in Russian society will also be negatively impacted.
People who used to boast about the strong ruble will start accusing the government of a liberal conspiracy and label them as traitors. However, this is just a harmless activity – more of an ideological ritual.
On the other hand, those who used to predict a fall of the ruble to 200 per dollar will become more active. They have been quiet for months, but if the exchange rate goes over 70 rubles per dollar, their negative reactions will be as strong as the sounds of May frogs after rain. This will definitely impact the financial decisions of the Russians.
In summary, if simplified, the situation looks like this. If you move to the left, the budget will suffer. If you move to the right, social optimism will decrease. Meanwhile, inflation will resurface.
SHOULD YOU INVEST IN DOLLARS
What should ordinary Russians do in these circumstances?
It is impossible to give a definite answer because each Russian is unique. For the millions of people who have no money or barely enough to survive, these forecasts are not relevant. Only those who have savings and something to invest should consider this topic.
Economics expert Sergei Nechaev suggests saving 10% of your income each month if possible. It is advised to allocate the savings in the following proportions: 50% in rubles, 25% in US dollars, and 25% in euros.
But how should you save?
Sergei Nechaev responds to this question by saying: “Money should not just sit idle, it should be used to generate more money. Not long ago, money could be put into projects, lent out with interest, or invested in cryptocurrency. However, due to current circumstances, these options are no longer viable. Putting money in Russian banks is also pointless, as the interest rates are too low to cover inflation. So, what's the solution? If you have limited funds, do nothing. It's better to wait and be patient. If you have money, the safest option is to invest it, for example, in dollars. However, the average person won't be able to profit from fluctuations in exchange rates. Investing in dollars is a long-term game. For instance, if you don't need the money now and want to save and grow it, it's better to buy dollars at 70 rubles now and wait for the exchange rate to reach 100 rubles per dollar. But this won't happen overnight.”
At the start of the year, when the dollar was rising, many Russians rushed to buy it, and some even did so when the exchange rate exceeded 85-90 rubles. Now, the best course of action is to be patient and wait.
When the dollar dropped to 60 rubles, many panicked and sold their dollars, expecting it to fall even lower. This rush to sell was unnecessary. The general advice is: do not succumb to the panic spread by the media. If you are using rubles for transactions, buying dollars is not the best strategy. Why? Because when purchasing dollars, you pay a higher rate than the one set at the currency exchange. For example, if a person wants to sell their dollars after two months, they will receive less than the exchange rate, resulting in losses with minimal chance of significant gains.
Financial analyst Jan Art believes that most economists and financiers are puzzled by the strengthening of the ruble. He states that for some Russians, the ruble has become more than just money; it has become a symbol. Some view its strength as a sign of being on the right track, while others see it as a return to the Soviet Union era. The ruble is also seen as a symbol of the Kremlin's current politics, especially after US President Biden's statement about it.
Everyone must decide for themselves, but the bottom line is simple: short-term investment in dollars is pointless. Buying currency is more worthwhile for long-term savings, like for several years.
IS IT WORTH INVESTING IN “EXOTIC” CURRENCIES
Many people dismiss dollars, euros, pounds, francs, and yuan as meaningless and unbacked. Lately, there's been talk of the Chinese currency as a better alternative to the dollar and euro.
Perhaps, but do ordinary Russians even know what pounds, francs, and yuan look like? Very few do, which makes them vulnerable to scams. Also, investments should be legal and easy to sell, so exotic currencies may not be the best choice due to their low household liquidity.
The same goes for “exotic” currencies. They are hard to buy and have few safe selling options.
So, these types of “investment” are not very effective due to their low liquidity for everyday needs.
And if there are any doubts, consider what currency the state keeps its savings in. As of June 2021, the Central Bank reported that only 13.1% of its reserves were in yuan, while 16.4% were in dollars and 32.3% were in euros.
IS IT WORTH INVESTING IN GOLD
Sberbank customers have reportedly purchased 10 tons of metal from the bank this year, including 7 tons of gold. However, gold does not necessarily protect savings during periods of market uncertainty and may pose challenges when trying to sell it.
Though there is a perception that gold is a good defensive asset for saving during market uncertainty, in reality, it may not work that way. When trying to sell gold bullion, there can be difficulties with verifying authenticity, as well as dealing with taxes and payment for chemical expertise. Additionally, selling the ingot before owning it for three years would incur a 13% personal income tax.
While the purchase of 10 tons of metal, including 7 tons of gold, is significant, investing in gold may not provide the expected benefits. Selling an ingot may lead to challenges with authenticity verification, payment for expertise, and taxation, especially if sold within three years of ownership.
photo: Yuri Kochetkov/EPA/TASS
So – everyone decides for himself, but for those who certainly want to buy gold, I would like to advise you to do it only for collection purposes.
CONCLUSIONS AND OFFERS
Financial analyst Jan Art argues: “We can draw several conclusions from all this.
The first. The peak of the ruble, it seems, is behind us, we will never see 50 rubles per dollar, although they will talk about it for a long time and plentifully, perhaps with saliva. Then they will “find the traitors”, because of whom this did not happen, they will say that they are to blame for everything and, as usual, they will gradually calm down on this.
Second. The ruble is economically objectively destined to return to 70, and possibly to 80 rubles per dollar. But the irony is that now it is not so easy to lower its rate: too much pushes it up.
And the third – you should not get excited, looking at the ruble jumps in the coming days. This is not yet a stable course of the ruble boat – this is just an attempt to find a way out of the winding bay into which the ruble (like all of us) has lately been brought by a difficult … “
And we can only join this assessment.
You shouldn’t get excited. You should not believe TV, because there, on financial and economic topics, mainly those who do not understand anything talk about it. Or they understand, but only say what they are allowed to say. You should not believe those specialists who make forecasts of the ruble exchange rate, because in our country the ruble exchange rate is too politicized and is not formed at all under the influence of market mechanisms.
And if so, everything is simple. If there are extra rubles, it is still better to buy dollars and put them “under the pillow.” If you already have dollars, then it’s better not to “twitch” for now. If you have dollars, but urgently needed rubles, you need to sell – you can’t get anywhere. Well, as for other currencies (including the euro), it makes sense to buy them only when you are going to travel to a country where these currencies are in circulation.
