Author`s name Michael Simpson

Distressing Prospects for Dollar, Positive Ones for Euro

Russians will pay too high for the irrational love for the dollar
The official dollar rate announced by the RF Central Bank for June 21 makes up RUR 30.3807. The Bank's public relations department reports thus the ruble value in dollars hasn't changed as compared with the rate announced for June 20. This news is rather pleasant. 

According to currency traders, yesterday the Central Bank didn't intervene in the dollar trades at a special session of "today" deals and didn't buy currency on the UTS. The Central Bank didn't hamper the ruble strengthening which is proven by the weighted average dollar rate registered on the UTS on June 20: the rate reduced by 4 kopecks as compared with the official dollar rate. What is more, majority of stock analysts think that a wide dispersion of quotations also proves that the Central Bank abstained from intervention in the trades yesterday. The minimal bargains were struck for 30.33 rubles for one dollar and the maximal ones for 30.37 rubles. 

What is to happen with the American currency and those Russians who still prefer to keep their savings in dollars? To all appearances, the prospects are rather unhappy. Analysts say over and over again that the dollar is getting cheaper as compared with the euro. And this is at the time when prospects of the US economy are much more attractive than those of the Eurozone. Majority of Russian and some foreign analysts say it is very likely that one euro will cost 1.25 dollars until the end of the year, RBC-Daily reports. 

However, the situation will be seriously alarming if the dollar gets cheaper as compared with the euro. According to analysts, excess of the level is dangerous for both American and European economics. 

On the one hand, the reduction of the US national currency revived export from the USA (it increased by 4.3% in the first three months of the year); however, more expensive import worsened the balance of trade. If we take today's level of the dollar devaluation into consideration, we'll see that investors trust the European assets more and prefer to invest the economies of EU countries. Further devaluation of the dollar may finally undermine the trust of investors to US's economy. In 2002, direct foreign investment in the USA reduced by 80%. 

As for Europe, if the dollar grows weaker it may entail much damage to exporting companies, result in bankruptcies, increase the unemployment rate and may even bring political chaos. For Russia, weaker dollar means that exporting branches of the industry will depreciate and majority of the population will grow poorer. Under these conditions it would be insane to keep on playing against the US currency. It is a really scary fact but the dollar may go down even more for many objective reasons. 

Russian analysts hope that the dollar will manage to keep the present-day positions. Otherwise, Russians who still prefer to keep their savings in dollars will have to pay too high for the irrational love for the foreign currency. 

As it often happens, Russians are ready to go from one extreme to another. The euro popularity is increasing among the Russian population. The amount of cash euros is insignificant otherwise majority of the population would have exchanged all the dollar savings for euro long ago. 

According to bank experts, it took just a year for many Russians to change the attitude to the American currency; many of them treat the dollar with distrust now. Different estimates show that savings of Russians make up about 40 billion dollars in cash. At the same time, the number of people believing euro savings more reliable is increasing. The demand for dollars has considerably reduced. As a result, net outflow of cash dollars out of Russia was first registered in March 2003. 

Russian banks are increasing the number of euro transactions; they gradually give up dollar investments. Russian exporters now often settle accounts with foreign partners in euro. So, the tendency is obvious. In this situation, the Central Bank of Russia can do anything it wants. But it seems to be unwilling. 

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