Moscow resident Tima Kulikov banked on the full faith and credit of the US government, not the Kremlin, when he sold his biggest asset for cash.
The 31-year-old director of a social networking Web site initially agreed to sell his apartment for rubles, then cringed at the thought of the currency weakening as it sat in a lockbox pending settlement of the contract. It wasn’t until the buyer showed up with $250,000 stacked in old mobile-phone boxes and stuffed in his pockets that Kulikov closed the deal.
“The exchange rate we agreed on wasn’t great, but I did it because the money’s going to lie there for a month,” Kulikov said. “Put it this way, the ruble’s more likely to have problems than the dollar.”
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 defence of the ruble, signalling a larger devaluation may be on the way. The currency has fallen 16 per cent against the dollar since August, when Russia’s invasion of neighbouring Georgia helped spur investors to pull almost $200 billion out of the country, according to BNP Paribas SA.
The central bank today expanded the ruble’s trading band against a basket of dollars and euros, allowing it to drop 0.8 per cent, said a spokesman who declined to be identified on bank policy.
With the spectre of the 1998 debt default and devaluation in mind, Russians withdrew 355 billion rubles ($13 billion), or 6 per cent of all savings, from their accounts in October, the most since the central bank started posting the data two years ago. Foreign-currency deposits rose 11 per cent.
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Russians’ fears are fuelling the case for devaluation, with most pressure on the currency coming from locals converting their cash, according to Basil Issa, an emerging-markets analyst at BNP Paribas in London.
Property is now a protective investment, not just a status symbol, said Sergei Polonsky, founder of real estate developer Mirax Group, which is building Moscow’s tallest skyscraper.
“Lately our clients are mostly those who buy real estate not to live in but to secure their investments,” Polonsky said. “No one wants to be left with pieces of paper.”
The 25 wealthiest Russians on Forbes magazine’s list of billionaires, including Oleg Deripaska and Roman Abramovich, lost a combined $230 billion from May to October as asset values plummeted, according to Bloomberg calculations.
For the burgeoning middle class, investments of choice range from electronics to gold jewellery Evroset, Russia’s largest mobile-phone chain, is telling people to buy anything they can.
“It’s better to feel happy that you own something than to fear losing the money you have earned,” Chairman Yevgeny Chichvarkin says in a letter posted at 5,200 Evroset.