Named the reason for the mass purchase of cash currency by Russians

People have chosen a crisis model of consumption

The volume of cash in the hands of the Russians for the first time exceeded $100 billion in dollar terms. The amount is gigantic, and since we are talking about toxic Western banknotes, such a massive manifestation of “substance abuse” cannot but raise questions. It turns out that dollars and euros, driven to the sidelines of financial life in our country, entangled in various restrictions, are still in demand by the population.

As follows from the data of the Central Bank, as of February 1, 2023, Russian households kept “under the mattress” 7.33 trillion rubles in foreign currency in cash, or 105.4 billion in dollar terms. This is a record value since 2018, for the entire time of observations.

If we compare this information with the previously published one, we can conclude that the unrecorded increase in foreign exchange cash in the hands of the population was outlined in the second half of last year. From July 1 to December 1, 2022, the amount of cash dollars and euros held by households increased by $4.3 billion compared to $1.3 billion reflected in the old statistics.

Recall that on March 9 last year, against the backdrop of a run of depositors on banks and the EU embargo on the import of euro cash into Russia, the Central Bank imposed restrictions on the withdrawal of foreign currency from accounts and deposits. Two days later, the United States imposed an embargo on cash dollars. Russians were allowed to withdraw no more than 10,000 or the equivalent in euros, if this money was in the account before the introduction of restrictions. Amounts above the limit can be withdrawn only in rubles. The restrictions have been extended twice, most recently until September 9, 2023.

“$105.4 billion is a huge amount, considering that we accumulated $600 billion worth of all our gold and foreign exchange reserves,” says financial analyst Sergei Drozdov. – However, this does not surprise me: the entire recent history of Russia has taught people that in troubled times it is necessary to seek salvation in the dollar. It’s already an axiom: if you get a ruble surplus somewhere, buy a green note, it won’t get any worse. Nothing has changed since the 1990s. However, when the ruble strengthened to 50-55 last summer, many people panicked and hurried to get rid of the currency and convert it into rubles. The sober-minded and financially literate public did not do this, and in the end they did not lose: the rate of the “American” naturally returned to the level of 2021.”

Now what do people do with this currency stash? And nothing, let him calmly lie to himself “under the mattress,” Drozdov argues. Taking it to the bank is unwise, given the negative interest rates and draconian annual service fees. In the context of geopolitical risks and general uncertainty, “unfriendly” assets will remain relevant in the country for a very long time. And if you suddenly need money for a major purchase, you can exchange dollars (or euros) for Russian currency at the bank.

“New data from the Central Bank once again testify to the accomplished transition of Russians to a crisis consumption model,” said Artem Deev, head of the analytical department at AMarkets. – People reduce costs, make purchases based on the price of goods, and finally seek to create a financial safety cushion. In normal times, the savings rate is 5-6% of income, and now this figure reaches 10-15%. This is clearly not good for the economy: dead weight funds are not invested in it, do not accelerate consumer demand, as a result, manufacturers have to reduce output.”

Despite the problems in the dollar zone and in the EU (banking crisis), it should be understood that the currencies of developing countries are a priori more vulnerable and volatile. Deev advises to diversify savings: keep some of them in dollars and euros, and some in national currency, in case funds are needed quickly. You can also purchase Chinese Yuan and investment gold and silver coins. Deposits in banks are unprofitable due to low rates, trading on the stock exchange is risky. “A crisis is not good for looking for quick profits, the main thing is not to lose what you have,” the analyst says.

“In fact, the amount of $105.4 billion (7.33 trillion rubles) has been withdrawn from economic life, and this is almost 5% of the country’s GDP for a minute,” says Alexei Fedorov, TeleTrade analyst. – If citizens directed it to consumption and investment, then 3-7 percentage points would be added to the growth of Russian GDP, depending on how these funds would be used. The motive for folding the currency “under the mattress” is understandable: people want to protect themselves from the depreciation of the ruble. That is, the higher the volatility of the exchange rate, the stronger the desire to acquire foreign currency cash. Moreover, the population does not just go into dollars and euros, but chooses the most extreme form of protection in the form of cash. And at the same time, he sacrifices a fixed income from placing his money in banks.

However, Fedorov concludes, one should not “sit out” in cash foreign currency for too long. If the ruble exceeds 90-100 per dollar, it would be reasonable to place at least part of such funds on ruble deposits or government bonds. By that time, interest rates on these instruments will be significantly higher than the current ones.