Publication: Monitor Volume: 6 Issue: 109

The central banks of Belarus and Russia announced in mid-May that several steps had been taken in moving forward on a single currency to be in place by 2005 (Reuters, May 15). This action was envisioned by the treaty signed in late 1999 by Belarusan President Alyaksandr Lukashenka and then Russian President Yeltsin. The sticking point has been the Russian insistence that the currency be issued by a single authority in Russia. The problem now, however, is the current feeble condition of the Belarusan ruble and that country’s misbegotten foreign currency regime, which includes multiple rates of exchange.

While the official exchange rate of the ruble against the dollar deteriorated from 135,000 at the end of January 1999 to 320,000 by year-end, the gap between the artificially maintained official rate and the black-market rate remained huge. By the end of January 2000, the official rate had fallen to 356 (redenominated) to the dollar while the black-market rate had reached 935. By the end of March the street rate was some 965.

The National Bank of Belarus did move to liberalize its foreign exchange market in December 1999. This followed a series of ineffective measures in the second half of last year aimed at building up reserves and stabilizing the exchange rate. What these actions did was drive up the cost of foreign exchange on the black market by virtually eliminating the legal availability of foreign exchange. The National Bank established an additional special foreign exchange trading session in early April 2000 at which free trading takes place in lots of at least US$100,000. Small amounts of foreign exchange had been sold at free-market rates since last December and banks had been buying dollars at rates of around 850 rubles. The remaining trading has involved the mandatory sale of export revenues to the National Bank which is the only purchaser. In early 2000, the bank increased the mandatory percentage of export revenue sales from 30 to 40 percent.

The mid-May announcement indicated that the Belarusan goal would now be to tie the ruble “loosely” to the Russian ruble by this autumn. The bank hopes to be able to stabilize the currency in the coming months by keeping the inflation rate under 5 percent per month. The bank wants to bring foreign exchange reserves up to US$500 million by year-end. It plans to achieve this goal through sales of government securities for hard currency (to tap hard currency savings held by the populace) as well as through hoped-for credits from the Russian Central Bank. Concurrent with the May announcement Pavel Kallaur, the first deputy chairman of the Belarusan central bank, called for a stabilization fund from Russia of US$150-200 million (Reuters, May 15). Kallaur admitted that Belarus would first have to bring inflation down sharply and unify the exchange rate. A final draft agreement was drawn up the following week (Agence France Presse, May 24), but it significantly omitted any commitment to a schedule for implementation. It is highly unlikely that Belarus could meet the necessary conditions by year-end or that Russia would be willing to provide a fund of that size.