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The devaluation of the Belarusian ruble is a stranglehold for the people and a lifeline for the economy of Belarus

The devaluation of the Belarusian ruble is a stranglehold for the people and a lifeline for the economy of Belarus

Devaluation is a decrease in the value of the national currency relative to the value of currencies of other states.

For the population of the country, whose earnings are formed in the national currency, this is bad! It entails inflation (with a high level of imports in the country's economy) and reduces the solvency of the population relative to imported goods (and not only), of which there are quite a lot in the consumer basket of every average person. That is, with the same amount of money in the national currency, a person will be able to buy less products (both imported and domestic, which also consists mostly of imported raw materials).

We understand that the exchange rate of the dollar or the currency for which importers supply goods to the Republic of Belarus will increase and the price in Belarusian rubles for it will automatically increase.

But why does devaluation contribute to solving financial problems at the national level and why is it typical for the Belarusian economy ?

It should be understood that devaluation is, first of all, a forced measure aimed at stimulating the economy, the share of exports in which is significant.

It is quite justified that devaluation is a lifeline for an economy where the foreign trade balance has a negative value and has a long-term tendency to accumulate it. The growth of the negative foreign trade balance indicates that in order to cover the annual growing needs in foreign currency, it is necessary to use gold and foreign exchange reserves (gold reserves) or constantly attract foreign loans and credits. Usually this shortcoming is covered by IMF loans, government bonds, loans from other countries (which have no problems with the currency). All this contributes to the growth of national debt (a crisis phenomenon) with a real potential to go into default if the trend is long-term.

Of course, this can be avoided by:

  • import reduction. 
    Import substitution – reorientation of domestic producers to cover the import needs of the population and the real sector of their country.
  • export increases.
    Increasing export-oriented production.

In Belarus, over the past five years, the trend has the following form (especially for the last reporting year 2020):

dynamics of Belarus' foreign trade balance for The last 5 years

Artificial and the easiest way adjustments of financial flows in the country - this is a devaluation.

How financial flows are transformed when the national currency depreciates in the economy.

At the national level, due to devaluation, expenses are reduced relative to income in foreign currency.

What does this mean, in particular for the Republic of Belarus.

In the real sector of the Belarusian economy, the costs of manufactured products are formed for the national currency (wages, services, materials of domestic production). The share of foreign money (imported raw materials, materials) in the total amount of costs is determined only by the imported material component, which is significantly less than the costs in the national unit. Therefore, when the Belarusian ruble is devalued, the reduction in the cost of the national product in the currency will not be proportional, but significant, relative to the general level of the fall in the price of the Belarusian ruble.

For example, (in rough approximation) the change in the items of income and expenditure of the budget of an export-oriented organization before and after the devaluation of the Belarusian ruble with comparable production volumes.

what is the devaluation of the Belarusian ruble

Except that the balance of payments after devaluation changes from minus to plus, with comparable sales volumes, there is an additional potential to increase the volume of sales for export, by increasing the price competitiveness of products in foreign markets.

Producers will have the economic potential to reduce foreign exchange prices (export), since the cost in foreign currency will be significantly lower. And this will contribute to an increase in exports to the markets of the near and far abroad, as well as the sale of all residues and unloading of warehouses.

It's not for nothing that the US is constantly trying to get China to strengthen its national currency in order to increase the competitiveness of American goods in foreign markets!

As a result, the scenario of the devaluation of the Belarusian ruble assumes an increase in foreign exchange earnings to the country with declining costs.

This, in turn, will allow:

  • put the country's shaft-forming and export-oriented enterprises on the rails of profitable work.
  • «comb» for the better, the state balance of payments – taxes at the expense of exporters will grow, and expenses in the form of wages will decrease (in Belarusian rubles will remain at the same level, in foreign currency will decrease).
  • facilitate the servicing of the national debt.

The devaluation of the Belarusian ruble is a lifeline for the Belarusian economy! - Something like that!

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