Why De-dollarization Is Impossible with 30% Annual Depreciation
Translated from Russian with the help of AI. Original: Russian version
Depositors will not keep their savings in tenge as long as expected depreciation exceeds the deposit rate. De-dollarization is unlikely within the next year, because holding tenge is not yet economically beneficial and trust in the exchange rate is lacking.
The morning session for the US dollar opened at 277.05 tenge. A month has passed since the National Bank of Kazakhstan (NBK) entered the foreign exchange market. The tenge weakened from 270 to 277 per dollar. There was a slight strengthening on the tax payment days of September 23–24, and nothing more. In other words, the tenge depreciated by about 7 tenge over the month, which corresponds to 30% per year.
Now let's imagine the following. I am an individual with a stable income, and I can put a certain amount of money, N, into a deposit every month as savings. The tenge deposit rate is 10% per annum, while the tenge is depreciating at 30% per annum. The question is: in which currency will I keep my money?
The answer: if I am reasonably well educated, in US dollars, because expectations of depreciation outweigh the potential income from tenge deposits.
Next, I will watch how the US dollar behaves. If the dollar does not appreciate against the tenge over a certain period, I can then convert my dollars into tenge, or at least start saving in tenge.
But the problem is that, in the current situation, I do not know whether the tenge rate is market-determined or whether the National Bank is holding it back. As an ordinary person, I will look at the Kazakhstan Stock Exchange (KASE) and see that the NBK continues its interventions. I will then understand that the tenge is still under pressure, and that even if the rate stands still, it may well still be subject to depreciation. This means that the time needed for so-called de-dollarization is extended by the period that will psychologically give me evidence that the rate is market-determined and is not being supported by the NBK.
This is roughly how most people who decide in what currency to keep their money think. Obviously, the answer is US dollars. So there is no reason to talk about de-dollarization within the next year: first, it is not yet economically beneficial, and second, there is no trust or confidence.
Published in: Facebook, 15 October 2015