Think about it: a trillion and a half dollars! This:
– four annual budgets of Russia;
– Annual GDP of Spain or Mexico;
– gold and foreign exchange reserves of Russia, India and Brazil combined;
– market capitalization of giants like Google or Amazon.
But in our case, the main thing is that one and a half trillion dollars is the amount of money in different currencies stored in the foreign accounts of Russian citizens, companies and the state.
Just three years ago, we would not have seen anything surprising in this. Well, they store and store, that’s business. After all, the credo of our foreign trade is to make a profit. We always sell more than we buy.
But over the past two years, the geopolitical reality has changed somewhat. And even in the new realities, the amount of “Russian” money in foreign accounts, if it decreases, is not by much. And a record part of exporters’ profits remains abroad. And although the rate of capital outflow decreased in the spring (according to the Central Bank, Russia’s foreign assets grew by only $5 billion in April), the question arises: why are Russian funds kept abroad in the first place? Is this dangerous for our economy?
THEY WANT TO BUT THEY CAN’T
There is a concept in economics called “balance of payments.” This is the difference between cash flows. Some flow within the country, others flow across its borders.
If we sell something abroad and receive income from it, this is an advantage. But if, on the other hand, we buy something and give money for it, a minus sign is formed. If we sell more than we buy, a surplus is created.
According to the Central Bank, in January-May this year our foreign trade surplus almost doubled compared to last year. It was $21 billion, but it turned into $38.1 billion.
It seems like we can be happy. More money should come into the country. They will definitely not bother us anymore.
But there is a problem. Since December last year, the United States has threatened secondary sanctions against all banks that help Russia circumvent restrictions. As a result, many banks in Turkey, China and the United Arab Emirates have stopped cooperating with their Russian partners. And the accounts of Russian companies in foreign banks have accumulated huge amounts of money that they want to send to Russia, but cannot. According to the Higher School of Economics, the net outflow of capital in the first quarter of this year amounted to $28 billion.
EVERYTHING IS GOING SLOWLY IN THE EAST
It turns out that the money is in accounts of Russian companies in foreign banks and cannot physically be returned to the country. Not all of it, of course, but a significant part of it. Moreover, most of the funds are stuck in friendly countries where our companies have their accounts.
This creates problems for both exporters and importers. And ultimately it affects us all. After all, we need money to spend it within the country. Therefore, I would like to see funds from the sale of raw materials abroad returned freely within our borders.
– Who are our main partners today? Turkey, India, China. The East has never been known for its speed in making decisions on transactions: everything is slow there. Moreover, SWIFT transfers, even in the best of times, were slower through Asian banks, says Denis Astafiev, founder of the SharesPro investment company.
The money is in accounts of Russian companies in foreign banks and cannot physically return to the country.
Photo: Ekaterina MARTINOVICH. Go to Photobank KP
COSTS ARE RISING
There are other reasons why the amount of funds in offshore accounts is constantly growing. One of them is that companies are simply forced to keep part of their money there.
– Capital outflow is a stable phenomenon for business organisation in our country. There are objective reasons for this. Companies are forced to play it safe. They need money abroad to cover operating expenses, effective business management and minimise liquidity deficits, explains Denis Astafiev.
Simply put, if you work in a foreign country, part of your expenses (utility bills, rent, etc.) are borne by that country. To do this, you need money in the banks there. And the higher the turnover, the higher the account balances.
Secondly, the rich still send some of their money abroad. For them, it is a kind of diversification, a “putting your eggs in different baskets”: when you have a lot of capital, you have to distribute it wisely in order to save and earn money. As they say, to each his own.
At the same time, individuals began to export much less than before.
– According to the Central Bank, cross-border transfers by individuals in the first quarter decreased by $388 million compared to the end of 2023. This suggests that the main reason for the capital outflow is precisely the needs of businesses, Denis Astafiev is sure.
For example, in 2022, 2 trillion rubles left the country. And last year, the volume fell by half.
WHAT DOES ALL THIS THREATEN US WITH?
The increase in foreign account balances is clearly a temporary phenomenon. It is difficult to block rivers of money, and companies have learned to find workarounds over the past two years. In addition, the share of the Russian ruble in international payments is growing before our eyes. According to the Central Bank, more than 40% of foreign trade transactions are made in our currency. And the ruble is “managed” by the Russian side. It is much more difficult for the authors of the sanctions to influence ruble transfers.
“Moreover, some transactions are carried out on a barter basis: Russian companies supply products in exchange for other goods,” adds Ivan Ermokhin, a researcher at the OECD Russian Centre for Competition and Standards Analysis at the Presidential Academy.
In order to avoid being completely dependent on the international financial system, which is largely controlled by the United States and the European Union, it is necessary to create alternative payment channels.
– One of the promising areas is the development of settlements in digital currencies of central banks. The use of digital currencies implies a complete abandonment of the traditional system of international payments, which is subject to sanctions pressure. In addition, this payment method is potentially cheaper and faster,” explains Ivan Ermokhin. And he recalls: “A digital ruble has already been launched in Russia. The legislation assumes that it can also be used in international payments.”
Overall, the situation with capital outflows is much better now than in the 1990s and 2000s. At that time, the country’s wealth was exported by train. This was done both by private companies and individual oligarchs. They believed that their money would be safe in the West.
Now this myth has been debunked. And now the capital outflow is mainly due to the fact that companies need to conduct transactions with foreign partners.
That is to say, the capital flight used to be destructive. The money left and never came back. And the current capital flight helps our economy to develop and earn more money for the country, which will sooner or later return.
