What do the Belarusian Ruble and the U.S. Dollar have in Common?

While currency issues in former Soviet Bloc countries don’t usually make headline news in the main stream media, the devaluation of the currency of Belarus is worth reading about as a lesson in what is happening to the US Dollar.  On Monday, Zero Hedge reported “Belarus Just Devalued Its Currency By 56%”.  Zero Hedge comments:
Overnight 56% drop

At this point, it sucks (that is a technical term) to be holding any exposure in BYR. Luckily for those who held their “money” in the form of gold and silver, they just got an instantaneous 56% value preservation and a relative boost in their purchasing power with just one central bank announcement. Also, any and all indebted parties who have BYR-denominated debts are throwing one big party tonight, as their debt was just cut by more than half.

The change is effective 5/24/2011:
The National Bank of Belarus (NBB) is sharply devaluing the official rate of Belarusian ruble. The exchange rate as of May 24 was set at 4,930 rubles per dollar. A decrease of 56% from the 23 May.
Why should you care about the currency value of a country you probably have never heard of?  First, before you laugh too hard at the Belarusians, consult the following chart of the US dollar:
US Dollar 10 Year Chart
As you can see, since 2001, the US dollar has lost almost 40% of its purchasing power, relative to a basket of other currencies.  So while, our currency devaluation didn’t happen overnight, our central bank’s goals are quite similar to that of The National Bank of Belarus.  To understand what currency devaluation feels like, consider that in the last 10 years the price of oil is up over 400%, gasoline is up over 200%, corn is up almost 300% and gold is up almost 600% just to name a few.   The Belaursian central bank and US central bank are both using currency devluation to deal with massive debt problems. Those of you that have also been following following the bailouts of Greece and Ireland might add that if Greece and Ireland (and soon Portugal, Italy and Spain) were not a part of the EU and still had their own currencies, they would be doing the same thing as Belarus right now.  All of these countries (just like the United States) have massive, uncontrolled amounts of debt.  Debt that simply is too large to ever pay back with tax hikes and spending cuts.  The only real options are to not pay the debt back (default) or to pay it back by printing money (currency devaluation). The first option is deflationary in nature, meaning capital is destroyed and the price of things should decrease.  The second option is inflationary in nature, meaning the price of things will rise.  Both should result in higher interest rates, as investors demand more interest to protect from defaults, or they demand more interest to protect from inflation.  These markets, and indeed the world, is at a very precarious financial cross roads.
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1 Response to “What do the Belarusian Ruble and the U.S. Dollar have in Common?”

  1. What currency does Belarus use? - OnlineMoneyMunchers::Reply