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Deposits in dollars and Euro cause losses to Russians

Lately sensation has happened: Euro exchange rate to Russian rouble fell almost by 26 kopecks – from 36.56 to 36.3 roubles per Euro.
Exchange currency market in Russia is accustomed to the fall of the rate for the US dollar rate, but not for Euro. However, analysts believe the Euro fall is not surprising: Euro was overrated, and today they name Russian rouble as the best currency for saving money.
 
Until recently, the situation both in global and Russian financial market was favorable for Euro – its exchange rate to the US dollar was constantly growing. The growth increased after the statement of US Federal Reserve System Head Alan Greenspan that the USA will be doing well with no strong dollar. Euro exchange rate approached the record point of 1.2898 dollars. In Russia Euro also set the record by becoming 60 kopecks more expensive in one week. It seemed the answer to the question - which currency is better for saving money - has been found: Euro is the best, strongest and the most stable.
 
However, the latest events demonstrated that one can argue with this statement. Euro exchange rate fell 26 kopecks in one day. Experts say Euro’s falls and rises may be frequently repeated. Therefore the Russians hoping to have Euro as stable currency will be disappointed. 
 
Experts name some other reasons for individuals not to convert their savings in Euro. Bank accounts in Euro caused the biggest losses to depositors in January 2004. On average, deposits in Euro depreciated 5.2–5.45 percent, while US dollar deposits depreciated  4.5–4.7 percent. Purchasing capacity of Euro cash savings in January had a bigger decrease of 5.67 percent. In comparison, accounts in Russian roubles depreciated 1–1.3 percent, that is within the statistical error. According to experts, this did not cause significant losses to depositors.
 
On this background, Russian government calls to trust national currency are very relevant. The situation with the US dollar is obvious: even the most optimistic experts predict its exchange rate increase only in the end of the year. As for Euro, Western analysts are not optimistic either: economic growth in the EU counties is slow, and the two EU key donors – Germany and France - are constantly experiencing budget problems. Under these circumstances, jumps in Euro exchange rate are inevitable. For this reason experts say that Euro deposits may cause losses this year, and rouble is the most reliable currency.
 
Experts say that situation is complicated by banks decreasing rouble deposits interest rate. Currently it is 8–12 percent. This means that at best, rouble depositors will be able to protect their savings from depreciation. However, this is not bad taking into account the profitability level of deposits in Euro and US dollars in 2003.  
 
Is it time to convert savings in roubles? 
 
Elena Matrosova, Director of BDO Yunikon company Macroeconomic Research Center:
 
”People, especially conservative ones have not so many options for saving money. Many individuals have made their deposits, banks have sufficient number of exchange currency accounts, including those in Euro. For these individuals converting their money in other currency will not be profitable – they will lose part of interest benefits they are having today, and also will have losses while converting currency into a different one. It’s quite another matter if we mean making new saving deposits. Today rouble is the best currency for them. US dollar is in its minimum point for the last two years. On the contrary, Euro has reached its maximum and became very expensive. To gain equivalent profits for deposites in roubles and Euro, European currency should have rate about 40 roubles per Euro by 2004. This is hardly possible, and Euro exchange rate is likely to be 36-37 roubles per Euro this year. For this reason, one should not make new deposits in Euro”.
 
Vladimir Bandorin, Chief of Interbank Operation Department for Finprombank:
 
”I would not recommend Russian to quit foreign exchange currency and convert all their savings in roubles. Bank accounts in Russian roubles are more profitable – they offer higher interest than accounts in dollars and Euro. Cash savings should be diversified: keep half of your cash in roubles and another half in foreign exchange currency, some part may be converted in gold. As for Euro, it is not worth purchasing it because Euro is very expensive and unstable in global market. There is more probability for Euro exchange rate fall than for its increase. However, quitting Euro at all is also not a good idea”. 
 
Source: Novye Izvestia

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