Smooth transition to currency exchange rate preferable

Government aims to achieve steady Rouble exchange rate in coming months

By Yegor Nefedov

According to Belarus’ Prime Minister, Mikhail Myasnikovich, several conditions are required to ensure a steady rate, with a ‘safety cushion’ needed of gold and currency reserves. He explains, “This will be created soon. Moreover, we should also achieve a sustainable reduction in our foreign trade deficit while ensuring currency inflow to the country.”

Experts and business representatives were keen to see an unambiguous exchange rate formation mechanism before the May devaluation and, to all appearances, the Government plans to act in this direction. However, the question is how to achieve a steady Rouble exchange rate.

The opinions of experts differ, with some suggesting complete freedom for the exchange rate formation mechanism. They admit that, at first, the exchange rate would greatly increase but they believe it would then drop and find a stable rate reflecting demand and supply. Others criticise such an approach. Economist Georgy Grits reminds us that the national currency could come under attack by speculators if the exchange rate lacks state regulation. “In the mid-1990s, there was such an attempt to ‘default’ the Belarusian Rouble and make money as a result. However, the state interfered in time and the attempt failed,” comments Mr. Grits.

According to the expert, the second danger of a completely free exchange rate formation mechanism would be the risk of an upsurge in inflation, as imports could sharply rise in price. However, Alexander Gotovsky, Deputy Director of the National Academy of Sciences’ Centre of System Analysis and Strategic Research, notes that, at present, prices for many imported goods are calculated using an exchange rate set much higher than the official one. He explains, “The price includes all the costs involved in acquiring foreign currency. It’s essential that we achieve a steady exchange rate — to calm emotions on the market.”

Of course, no one argues the fact that we need a steady exchange rate. Judging by the Government’s announcements, the transition shall be smooth.

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