Which Currency Is Better for Holding Savings
Translated from Russian with the help of AI. Original: Russian version
After the shift to a floating exchange rate, tenge deposits yielded more than dollar deposits. Holding savings in tenge pays off as long as the tenge's depreciation is smaller than the gap between tenge and dollar deposit rates.
The National Bank moved the tenge to a floating exchange rate against the US dollar in August 2015, and the second anniversary is approaching. It started at 280, peaked at around 380, and now stands at roughly 320–330. I still consider the Russian ruble the main factor driving the tenge's exchange rate, followed by oil. Certain corporate events in the market also affect the rate, but mostly in the short term. These usually include tax payments, purchases or sales of large stakes, the capitalization of individual companies, dividend payments and so on.
But this post is about something else. After the tenge was set free to float, I moved most of my savings into tenge at 14% per annum. I did not do it right away, though, but a year later, entering at 340 tenge per US dollar.
Today the exchange rate is 328 tenge per US dollar.
So far, we still tend to measure our own wealth in US dollars, and at the first sign of volatility we swap tenge for dollars as a defensive reaction.
Let's calculate the return on $1,000 if you had exchanged dollars for tenge and put them in a tenge deposit at 14% per annum (an effective rate of about 14.9%). What would your return be in US dollars now?
In July 2016, this amount would have been equal to KZT 340,000.
With accrued interest, in July 2017 you would have received KZT 390,800.
At current rates, in US dollars this comes to 390.8/328 = $1,191. The return in US dollars would then be 19.1%.
If you had simply put your US dollars into a deposit at 3% per annum a year ago, you would have earned only $30.4 and would now have $1,030.4.
Now let's calculate what the tenge exchange rate against the US dollar would have to be for us to break even with a rate of 14% per annum.
390,800/1,030.4 = 379 tenge per US dollar.
That, incidentally, answers the question of which currency to hold savings in.
If the currency's depreciation is smaller than the difference between the interest rates on foreign currency deposits and tenge deposits, it is more profitable to hold savings in tenge.
Incidentally, the rate was 379 tenge when the oil price was below $30 per barrel, which is unlikely under current conditions.
Published in: Ratel.kz, 14 July 2017