Exotic money from friendly countries is gaining more and more popularity among Russians
If you are going on holiday abroad, you cannot do without foreign currency, even if you have purchased an all-inclusive package. You will need pocket money in any case, and it is better to have cash, since Russian bank cards are not accepted in many countries. But after the cessation of trading dollars and euros on the Moscow Exchange due to the introduction of sanctions against it, Russians began to think whether it would be better to take the currency of the country of stay with them: those flying to Turkey can buy lira, for those traveling to the UAE it is logical to have dirhams with them, and those flying to Goa can take rupees. MK found out from Maxim Osadchy, head of the analytical department at BKF Bank, which currency is best to take with you on vacation and why.
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— In the conditions of turbulence in the financial market, the most popular “safe haven” among the population is cash currency. For the period from February 1, 2022 to May 1, 2024, the volume of cash currency “under the pillows” of Russians increased from 84.3 billion to 91.8 billion dollars.
The sanctions led not only to an increase in the population's demand for cash currency, but also to a change in the range of foreign money circulating in the Russian cash currency market. If before the CBO, the market was completely dominated by hard currencies — the dollar and the euro interspersed with British pounds, Swiss francs and yens, then after the start of the CBO they forgot about pounds, yen and francs, and soft currency — the Chinese yuan — poured into the Russian market like the full-flowing Yellow River. Which is a natural consequence of the Yuanization of the Russian economy. In addition, exotic items such as UAE dirhams and Indian rupees are being promoted.
— The yuan, of course, is a soft currency (a hard currency is a currency that is not or minimally susceptible to economic fluctuations, such as inflation, a soft currency is the opposite. — “MK”), “second-class” money — the Chinese currency is not even freely convertible . But then the Copernicus-Gresham law came into play: “The worst money drives the best out of circulation.” We see the same effect in the Russian economy: European brands were supplanted by Chinese ones. After the sanctions on June 12, a joke appeared: “In place of the currency exchange there will be a renminbi one.”
However, if the reason for the displacement of goods from Europe and the United States by Chinese goods is clear — these are sanctions, then the reason for the displacement of hard currencies in the market by soft currency — the yuan, remains mysterious. Of course, immediately after the start of the CWO, the US and EU imposed an embargo on the supply of cash dollars and euros to the Russian Federation, and planes with stacks of dollar bills stopped flying from New York to Moscow. However, “a holy place is never empty”: it was possible to quickly establish new channels for the supply of cash dollars and euros from “friendly” countries. There is no shortage of dollars and euros in the domestic cash currency market; their supplies have been established from Kazakhstan, Azerbaijan, Turkey…
— The reason for the expansion of cash yuan on the Russian market is apparently not so much economic as psychological. But, of course, there is an economic component to the demand for cash yuan — this is increased tourism to China. Plus, inbound tourism from China to Russia is actively growing, the Chinese come to us with cash yuan. In addition, due to growing problems with non-cash payments (as Chinese banks refuse to accept payments from Russia due to the risk of secondary sanctions), domestic businesses are increasingly using cash payments in yuan for Chinese imports.
— When deciding to purchase a currency, you need to pay attention to its main properties: volatility — hard or soft currency, and liquidity. And also on spreads (the difference between buying and selling rates) associated with these two properties. You also need to pay attention to whether the currency is freely convertible or not. Let me remind you that both the yuan and the Indian rupee are not freely convertible currencies, and this is a very big disadvantage. In addition, you should remember the risks of withdrawing certain series of foreign currencies from circulation. Thus, Swiss franc banknotes of the 8th series were recently withdrawn from circulation. And last year, 2,000-rupee banknotes were withdrawn from circulation in India.
— Undoubtedly. Additional demand for cash currency is created by the fact that deposits in foreign currency remain an unattractive instrument due to the restrictions imposed by the regulator at the beginning of the CBO. Let me remind you that the document “Measures of the Bank of Russia to stabilize the situation in the financial market in the context of the implementation of sanctions risks” states: “Citizens can open new foreign currency accounts and deposits, but investments can be withdrawn from them in rubles. Payments to individuals from foreign currency deposits in the event of receipt of foreign currency from September 9, 2022 are carried out without restrictions at the bank’s exchange rate.” That is, you open a deposit in foreign currency, and receive it in rubles, and at the internal (read — arbitrary) rate of the bank. Therefore, while such restrictions are in effect, it is unwise to keep deposits in foreign currency in Russian banks.
—There is no particular point due to large spreads. It is better to take dollars with you and exchange them for dirhams in the UAE. Moreover, there is no point in investing in cash dirhams. Its exchange rate is pegged to the dollar at a ratio of 3.6725 dirhams per dollar. The liquidity of the dirham is significantly lower than that of the dollar, and the spreads are much higher.
—The Indian rupee has not taken root in Russia, liquidity is almost zero, spreads are large.
— It is better to take cash dollars and euros. In Turkey, India, and the Emirates it is easy to exchange these currencies for local ones at a decent rate.