The Popilation Prefers to Convert Their Savings into Foreign Currency Cash

The current crisis has been no exception to that rule: over the period from January 2014 through 1 February 2015, the share of individual bank deposits denominated in foreign currencies rose from 19.4% to 35.7% of the entire amount of broad monetary aggregates, thus going above that index's record high achieved during the previous crisis on 1 February 2009 (35.3%). A higher rate of 'dollarization' of the amount of money kept in all types of individual accounts in banks had previously been recorded only in late 1998 – early 1999, when the share of individual bank deposits denominated in foreign currency was more than 40%.

However, when taken in USD terms, the amount of money kept in individual bank accounts denominated in foreign currencies had actually increased since early 2014 from $ 180bn to $ 200bn (or by 11.1%). Over the same period, the amount of money in individual ruble-denominated accounts in banks increased by only 1.3% (or by Rb 0.33 trillion). Thus, the index of money kept in individual bank accounts denominated in foreign currencies was largely pushed up by the depreciation of the ruble's foreign exchange rate, as its 'foreign currency component' was recalculated in ruble terms. Over a 13-month period (since January 2014), the US dollar rose 2.1 times against the ruble. So, if the amount of money kept in individual bank accounts denominated in foreign currencies was increasing in USD terms at the same rate as the money in individual ruble-denominated bank accounts, their share would have likewise increased to 32.6%.

The recalculation of individual bank deposits denominated in foreign currencies was the determining factor behind the growth of broad monetary aggregates. Since the beginning of 2014, their index increased by Rb 7.9 trillion (from Rb 37.3 to Rb 45.2 trillion). At the same time, the ruble-denominated monetary aggregate (M2) remained practically unchanged, staying at the level of Rb 31.4 trillion – as the increasing amount of money kept on individual ruble-denominated bank accounts was set off by the shrinkage of cash in circulation (М0) by practically the same amount. In other words, the growth of monetary aggregates occurred almost entirely due to the increased value, in ruble terms, of the money kept in individual bank accounts denominated in foreign currencies. The growth component resulting from the increased amount of deposited USD, adjusted by the movement of the USD-to-ruble foreign exchange rate over the 13-month period, amounted to slightly less than Rb 800bn; the remaining growth component (Rb 7.1 trillion) was produced by the upward movement of the USD-to-ruble foreign exchange rate.

So, the movement of broad monetary aggregates over the past year was determined in the main by the recalculation of their components denominated in foreign currencies. However, over the period from January 2014 through 1 February 2015, the amount of individual bank deposits denominated in foreign currencies shrank by more than $ 5bn. The rate of shrinkage displayed by individual bank deposits denominated in foreign currencies was faster even than that displayed by the ruble-denominated ones: 6.0% vs. 4.5%. In other words, the growth displayed by the share of money kept in individual bank accounts denominated in foreign currencies occurred entirely due to the value recalculation factor.

The negative dynamics of individual bank deposits denominated in foreign currencies can be explained by the availability of an alternative instrument – 'cash-in-hand' savings. Over the year 2014 alone, net purchases of foreign currency cash exceeded $ 40bn, and the year-end growth index of foreign currency cash in circulation across the national economy for 2014 is estimated by the Bank of Russia to be $ 33.9bn. It is in this aspect of the population's demand for foreign currency cash that the current period differs from the period 2008–2009: then, the growth index of individual bank deposits denominated in foreign currencies was comparable to that of foreign currency cash in circulation.

Mikhail Khromov – Director of the Structural Research Center