Posted by: elambend | December 11, 2008

Russians Hedge as Ruble falls

“Russians are shifting their cash into foreign currencies and buying things they don’t need as the economy stalls and the central bank weakens its defense of the ruble, signaling a larger devaluation may be on the way. The currency has fallen 16 percent against the dollar since August, when Russia’s invasion of neighboring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.”

I once read an interesting science fiction short story set in a near-future world where inflation was so rampant that people would buy something almost immediately after being given cash as a hedge against inflation.  Commodities often make the best hedges and precious metals are doubly helpful because they can be made into jewelry and become a movable bank.

I’m not sure what these Russians are thinking though:

“Those who don’t want to spend are keeping more money at home or in safe-deposit boxes because the government guarantee on bank accounts is limited to 700,000 rubles, said Yulia Tsepliaeva, chief economist in Moscow at Merrill Lynch & Co.

Alfa Bank, Russia’s biggest non-state lender, said demand for boxes has increased about 40 percent since October, and there are few available.

“The Russian experience with saving is not that good and people prefer to consume and enjoy rather than save in pre-crisis situations,” Tsepliaeva said. “Buy cash dollars and put them in mattresses or safe deposit boxes but not in accounts because most crises are accompanied by banking crises.””

Relying on the Russian government to a) honor it’s 700,000 ruble guarantee and b) not raid safe deposit boxes strikes me as a risky bet.

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