Belarus Money: Devaluation And Worthlessness Explained

Belarus's currency, the ruble, has been through several periods of inflation and devaluation, which have rendered older versions of the currency worthless. The Belarusian ruble has been replaced three times since the country's independence from the Soviet Union in 1991. The first post-Soviet Belarusian ruble was introduced in 1992 and replaced in 2000. The second version was replaced in 2016, and the third version is still in circulation today. Belarus's economy has been described as a welfare state or market socialist, with the government maintaining control over key industries and eschewing privatisation.

Belarus' post-Soviet transition economy

Belarus has an upper-middle-income mixed economy, which is highly centralised and emphasises full employment and a dominant public sector. It has been described as a welfare state or market socialist. Belarus is the world's 74th-largest economy by GDP.

As a post-Soviet transition economy, Belarus has rejected most privatisation efforts in favour of retaining centralised political and economic controls by the state. This has been largely true since the disintegration of the Soviet Union and under the leadership of Alexander Lukashenko, who has maintained government control over key industries. Belarus has also eschewed the large-scale privatisation seen in other former Soviet republics.

The period between 1996 and 2000 was characterised by significant financial distress, particularly in 1998 and 1999, due to the financial and economic crisis in Russia. This resulted in a sharp increase in prices, the devaluation of the national currency, a decline in trade with Russia and other CIS countries, and an overall deterioration of the country's balance of payments. Extreme tension within the foreign exchange market was the key factor that destabilised the economy during this time.

Between 2001 and 2005, the national economy demonstrated steady and dynamic growth, with the GDP growing at an average rate of 7.4% and peaking at 9.2% in 2005. This growth was mainly due to the performance of the industrial sector, which grew on average by more than 8.7% per year.

In January 2011, Belarusians began converting their savings from Belarusian rubles to dollars and euros due to rumours of a possible devaluation of the ruble. The National Bank of Belarus was forced to spend $1 billion of its foreign reserves to balance the supply and demand for currency. In April and May 2011, many people had to wait in queues for several days to buy dollars in exchange booths. On May 24, 2011, the ruble was officially devalued by 36%.

Belarus has undergone two transitions: the transition to high income and the transition to a market economy. The first transition will be impossible without achieving the second. Belarus needs to adjust its government policies in several areas to avoid getting stuck in the middle-income trap. These areas include trade, innovation, finance, and livable cities. Belarus also needs to ensure accountability, control over corruption, and curb state capture.

The economic performance of Belarus has been unimpressive since the fall of the Soviet Union, mainly due to the country's lack of serious structural reforms. Belarus's potential transition is complicated by immense Russian pressure, and any assistance provided will be highly dependent on Russia's stance towards a democratic transfer of power.

Devaluation of the ruble

The Belarusian ruble has undergone a series of devaluations since its introduction following the collapse of the Soviet Union. The currency has been through three iterations, with the latest version being introduced in 2016. Each iteration of the currency has suffered devaluation, with the most recent instance being linked to the fallout from the 2022 Russian invasion of Ukraine.

First Ruble (BYB)

The first Belarusian ruble was introduced in 1992, replacing the Soviet currency at a rate of 1 Belarusian ruble to 10 Soviet rubles. This version of the currency lasted until 2000, when it was replaced by the second iteration due to a redenomination.

Second Ruble (BYR)

The second ruble was introduced in 2000 and lasted until 2016. During this period, the currency suffered significant devaluation, with multiple instances of the exchange rate being lowered by the National Bank of Belarus. In 2011, the currency was devalued by 36%, causing a shortage of currency and leading to the creation of a black market for currency exchange.

Third Ruble (BYN)

The third and current iteration of the Belarusian ruble was introduced in 2016. This version of the currency also underwent a devaluation in 2022, reaching an all-time low during the fallout from the Russian invasion of Ukraine. As of mid-March 2022, the Belarusian ruble had reached a low of 3.33 per US$1.

The devaluation of the Belarusian ruble has been influenced by various factors, including the country's economic policies, the performance of its key industries, and its reliance on imports from Russia. Additionally, the currency has been affected by broader geopolitical events, such as the dissolution of the Soviet Union and the 2022 Russian invasion of Ukraine.

Inflation

Belarus has faced significant economic challenges since its independence from the Soviet Union, including rampant inflation. The country's first post-Soviet currency, the Belarusian ruble (BYB), was introduced in 1992 and replaced by a new ruble (BYR) in 2000 at an exchange rate of 1 BYR = 1,000 BYB. This redenomination removed three zeros from the currency. However, inflationary pressures persisted, and the country experienced a financial crisis in 2011.

In the lead-up to the 2010 presidential election, the Belarusian government increased average salaries to $500 per month, which is believed to have contributed to the subsequent economic crisis. Other factors included strong government control over the economy, a discount rate lower than inflation, and a budget deficit. As a result, Belarusian citizens began converting their savings from Belarusian rubles to more stable foreign currencies, such as the US dollar and the euro. This put pressure on the country's foreign reserves, and the National Bank of Belarus was forced to devalue the ruble by 36% in May 2011. Despite these efforts, a shortage of currency persisted, leading to the creation of a black market for foreign exchange.

The financial crisis had a significant impact on the economy, with inflation reaching 108.7% in 2011. Average salaries, when calculated in US dollars, decreased from $530 in December 2010 to $330 in May 2011. Interest rates also rose sharply, affecting borrowing costs for individuals and businesses.

In July 2016, Belarus introduced a new ruble (BYN) at an exchange rate of 1 BYN = 10,000 BYR to address the persistent inflationary issues. This redenomination aimed to stabilise the currency and improve its purchasing power. The introduction of the new ruble also marked the first time that Belarus issued coins for general circulation, as previous inflationary pressures had made coins impractical.

The persistent inflation and economic challenges in Belarus have had a significant impact on the value of its currency, contributing to its perceived worthlessness.

Dependence on Russia

Belarus' economy is heavily dependent on Russia, with its economy described as a Soviet-style centrally controlled one heavily reliant on cheap energy supplies from Russia. Belarus has also maintained government control over key industries, eschewing the large-scale privatisation seen in other former Soviet republics.

The country's close relationship with Russia has been reflected in its currency. From the collapse of the Soviet Union until May 1992, the Soviet ruble circulated in Belarus alongside the Belarusian ruble. New Russian banknotes also circulated in Belarus during this period.

In 1994, Belarusian President Alexander Lukashenko began to suggest the idea of integration with the Russian Federation, including the introduction of a united currency. Article 13 of the 1999 "Treaty of Creation of the Union State of Russia and Belarus" foresaw a unified currency. However, discussions on the common currency continued well past the 2005 implementation goal set by both nations.

In 2008, the Central Bank of Belarus announced that the Belarusian ruble would be tied to the United States dollar instead of the Russian ruble. This was called a political decision by former bank chairman Stanislav Bogdankevich, linked to Belarus' open displeasure with Russia's hike of oil and gas export prices to Belarus earlier that year.

In 2022, Belarus' complicity in Russia's invasion of Ukraine resulted in it being targeted by Western sanctions. These sanctions have had a significant impact on Belarus' exports, particularly in the transport, fuel, and potassium sectors. The sanctions have also further weakened the credibility of the Belarusian authorities on international financial markets, leading to a decline in foreign exchange reserves.

Due to its dependence on Russia, Belarus has turned to its ally for economic support. In March 2022, the two states agreed to abandon the US dollar and switch to the Russian ruble in settlements for fuel supplies. Russia also agreed to defer Belarus' debt repayments for five to six years. However, it is unclear if Russia, which is also facing unprecedented sanctions, will be able to provide further support to Belarus.

The increasing isolation of Belarus by the West and the loss of its most profitable export categories have prompted foreign investors and Belarusian companies' business partners to leave the Belarusian market. As a result, Belarus is unable to refinance its foreign debt, leading to a decline in foreign currency reserves and exacerbated solvency problems. The Belarusian government has implemented temporary export restrictions and administrative price controls to mitigate the consequences of the looming crisis. However, the dynamic increase in exports recorded last year is unlikely to be sustained in the long term, and a profound recession in the Belarusian economy is inevitable.

Sanctions

Belarus has been subject to sanctions from the EU, US, UK, and Canada since 2006, with new sanctions being imposed in 2010, 2012, 2020, 2021, and 2023. These sanctions have been in response to various issues, including the 2020 Belarusian presidential election, which was widely criticized by Western observers, and Belarus's facilitation of the 2022 Russian invasion of Ukraine.

The sanctions have targeted specific companies and industries, including automotive manufacturers such as MAZ, MZKT, and BelAZ, as well as real estate and trading companies. In 2021, sectoral sanctions were introduced, affecting petroleum and fertilizer production, the tobacco industry, and access to EU financial markets.

In response to these sanctions, Belarus and Russia have stated their intention to use international law to combat what they perceive as illegal Western sanctions. At a press conference in Brest, Belarus, Russian Foreign Minister Sergei Lavrov claimed that the West has seriously violated international law and the rules of organizations such as the World Trade Organization, the International Monetary Fund, and the World Bank.

The impact of sanctions on Belarus's economy and financial system has been significant. Belarus has a highly centralized economy with a dominant public sector, and the sanctions have disrupted key industries and trade relationships. Belarus's economy is also heavily reliant on Russia, which is both a major trading partner and a source of oil and gas imports. As a result, the sanctions have likely contributed to the devaluation of the Belarusian ruble and the country's overall economic distress.

To conclude, the sanctions imposed on Belarus by Western countries have had far-reaching consequences, affecting the country's industries, trade, and currency. Belarus and Russia have vowed to use international law to resist these sanctions, arguing that they violate global norms and principles.

Frequently asked questions