“Keeping foreign currency in Russian banks is unreasonable”

The deposits of Russians in banks in June decreased by $1.2 billion to $48.4 billion. At the same time, they have halved since February 2022. Based on information from the Central Bank of the Russian Federation, the head of the analytical department of the BKF bank Maxim Osadchiy shared such data. Why did citizens decide to abandon dollars and euros, despite the noticeable strengthening of these currencies, how this will affect the wallets of compatriots and what awaits the Russian economy in the future, the expert told MK.

– What caused the reduction in foreign currency deposits of Russians, because the ruble has lost a third of its value against the dollar over the past six months, so is it profitable to save in American and European currencies?

– Foreign currency deposits of individuals in Russian banks are progressively declining, while similar deposits of compatriots in foreign banks are growing relatively steadily. During the period of the special operation, that is, from February 2022 to May of this year, foreign currency deposits of citizens in Russian banks decreased by almost half – by $42.7 billion (or by 47.9% to $46.5 billion), while foreign currency deposits of Russians in foreign banks grew over the same period by the same $42.7 billion (up to $73.7 billion).

– In June, this process continued, it turns out?

— Yes, but this is only one of the reasons for the reduction. Foreign currency deposits of individuals in Russian banks over the first summer month decreased by $1.2 billion, to $48.4 billion. I want to note right away that deposits are a broader category than deposits. The main direction of the outflow of foreign currency deposits is their flow abroad, to deposits in foreign banks.

The second most important direction is the flow into cash currency. From February 2022 to May 2023, the amount of cash held by Russians increased by $12.5 billion, to $96.8 billion as of June 1, 2023.

The main reason for the outflow is the “half-freeze” of foreign currency deposits – restrictions on this type of savings introduced by the Central Bank of the Russian Federation in March last year. I note: banks return funds from a foreign currency deposit at the internal rate, and his bank can do it any way.

– Why does the regulator not remove restrictions on foreign currency deposits of citizens so far?

– First of all, because of the embargo on the supply of cash dollars and euros, introduced, respectively, by the US and the EU. However, due to the rising popularity of the yuan, these restrictions could be eased or even abolished on friendly currencies without jeopardizing Russia’s financial stability.

– Then maybe it’s time for Russians to think about savings in friendly currencies?

– Currency restrictions also apply to deposits in friendly currencies, including yuan, so it is unreasonable to open deposits in Chinese currency before the restrictions are lifted. As of June 1, 2023, the share of non-toxic currencies (mainly RMB) in the foreign currency deposits of the population reached 13.38%, while a year before it was only 0.55%. As a result, the share of non-toxic currencies in foreign currency deposits of Russians grew 24 times over the year. As of June 1, deposits in “non-toxic” currencies reached $6.6 billion. Of course, the yuan is not such a high-quality currency as the dollar or the euro. The yuan is not even a freely convertible currency, it is significantly less liquid. With the yuan abroad, it makes sense to go only to China. However, for Russians, dollars and euros have become “toxic”, so they have to choose “the best of the worst.”

Where do dollars go from Russia?

– Where our citizens go. There were two main waves of migration: after the start of the special operation, that is, after February 24, 2022, and after the announcement of partial mobilization, that is, after September 21. These two waves are clearly seen in the volume of money transfers from Russia to Kazakhstan, Armenia and Georgia, where the main flows of our compatriots rushed.

– Have there been cases when Russians have reduced their deposits in dollars more? Or is this a unique situation?

– The largest outflow of foreign currency deposits occurred during the acute phase of the financial crisis, during the banking panic – a raid on banks, when the Russians stormed branches and gutted ATMs. In February 2022, foreign currency deposits of individuals in Russian banks decreased by $8.7 billion, in March 2022 – by $9.9 billion, so that the March outflow became a historical record.

– How does the decrease in dollar savings affect the country’s economy?

– The reduction of deposits in dollars and euros is part of the general trend of de-dollarization and de-euroization of the Russian economy. This is not from a good life: it is a consequence of the sanctions. They are trying to expel Russia from the “dollar paradise”. Participants in foreign trade activities have to switch either to settlements in cash “toxic” currency, which is extremely inconvenient, or to switch to settlements in yuan, Indian rupees, etc. However, these “third-rate” currencies, although friendly, but low-liquidity, can only be used in settlements for the products of the issuing countries of these currencies.

– What will happen next? Russians continue to refuse dollar bills?

— As long as sanctions against the Bank of Russia and the Ministry of Finance are in effect, and, therefore, as long as there are restrictions on foreign currency deposits, the trend of devaluation of deposits will continue. If the Central Bank of the Russian Federation removes restrictions on deposits in friendly currencies, then deposits in dollars and euros will be replaced by deposits in yuan.

– Do citizens need to be completely exempt from dollar and euro accounts?

– Under the conditions of restrictions on foreign currency deposits, it is unreasonable to keep foreign currency in Russian banks. And any – and “toxic” and “non-toxic.” In addition, the tightening of sanctions may lead to a complete freeze of deposits in toxic currencies, or to their forced conversion into rubles at an unfavorable rate.