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19 April 2023, 12:02

Reasons behind Belarus' floating exchange rate policy explained

MINSK, 19 April (BelTA) - Chairman of the Board of the National Bank of Belarus Pavel Kallaur explained the National Bank's decision to stick to a floating exchange rate policy as he spoke at a joint sitting of the House of Representatives and the Council of the Republic of the National Assembly of Belarus on 19 April, BelTA has learned.

In 2022 the National Bank continued its floating exchange rate policy to ensure the sustainable functioning of the foreign exchange and deposit market, which are known to be critical components of financial stability in the country. According to Pavel Kallaur, any central bank has two main options when choosing its exchange rate policy: either to fix the national currency rate at a certain level or to let the national currency rate change due to economic performance.

“Until 2015, the National Bank was focused on a fixed exchange rate regime. This required a constant expenditure of international reserves and, thus, led to an increase in the public foreign debt. Therefore, a decision was made to switch to a floating exchange rate system. Under this system, trends in the national currency exchange rate are determined by the overall macroeconomic policy of the state and the external economic potential of the economy,” the chairman of the National Bank said.

The National Bank mainly smooths out short-term fluctuations in the exchange rate of the national currency, ensuring parity of interests of different groups of economic agents, which are often opposed. “Let us take the exchange rate of the Belarusian ruble against the Russian ruble as an example. On the one hand, exporting companies benefit from the weakening of the national currency against the Russian ruble. On the other hand, the Russian market is the main market for consumer imports, and the decline in the exchange rate will cause an increase in prices in our market and, thus, will lead to the deterioration of the wellbeing of our citizens. The chosen exchange rate policy helps the exchange rate channel to quickly respond to market changes and prevent the accumulation of imbalances in the economy,” Pavel Kallaur said.

According to him, the dynamics of the Belarusian ruble in 2022 was largely determined by the changing rate of the Russian currency, reflecting the importance of the Russian market in the foreign trade of Belarus. In 2022, the official exchange rate of the Belarusian ruble against the Russian ruble decreased by 10.2%, against the U.S. dollar - by 7.4%, and strengthened against the Chinese yuan by 3.4%.

“The flexibility of the exchange rate, along with favorable trends in foreign trade, made it possible to balance the currency market and prevent an excessive reduction in foreign exchange reserves,” Pavel Kallaur said.

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