Russians withdraw money from the bank en masse

The Russian invasion of Ukraine is not only causing a lot of human suffering, but also great financial suffering. Economic sanctions have caused the value of the ruble to plummet, causing many Russians to see the purchasing power of their savings evaporate. Since the beginning of the conflict in Ukraine, there have been Long queues at the ATMs in Russia. Savers are concerned not only about the purchasing power of the ruble, but also about the safety of their banks.

The run on several Russian banks highlights the importance of diversifying savings and assets. Russians who have all their savings in the bank withdraw it or try to transfer it to other banks. This flight of savings is not limited to Russia, because people in other European countries are also withdrawing money from Russian banks. For example, Sberbank Europe is facing a Run on savings at its bank branches in Germany, Austria, Hungary, Slovenia and Croatia, among others.

Bank run at Russian banks

Savers are withdrawing their money en masse from this bank, which is why Sberbank Europe is now under the guardianship of the ECB. It can no longer meet its obligations, because it is no longer allowed to provide liquidity to its subsidiaries in Europe due to capital restrictions imposed by the Russian central bank. The Russia central bank can do little to stop this capital flight because Europe and the US have blocked access to much of its foreign exchange reserves.

Sberbank Europe has approximately 800,000 customers in Europe spread over eight countries. At the end of last year, they had a combined deposit of around €13.6 billion with the bank. In countries where the European rules of the deposit guarantee scheme apply, these savers are protected up to €100,000 in the event of bankruptcy. But that is of little use to them at the moment, because due to the problems at the bank, savers are not allowed to withdraw more than €100 per day for the time being. So they can't access all their money.

Flight to safe havens

Long queues at bank ATMs are every saver's nightmare. That is why it is important to spread your savings well, especially in these uncertain times. And that means not only spreading across different locations, but also spreading across different forms of savings. Russian savers are feeling the pain of a depreciation of the ruble today, but perhaps it will be the turn of European savers in the future. Consider, for example, a scenario with very high inflation due to further increases in the price of oil and gas.

If we look at history, we see that currencies always lose purchasing power in the long run. For example, after the fall in the exchange rate of the last few days, the Russian ruble has only 3.6 percent of its purchasing power in gold left compared to the ruble at the beginning of this century. The euro and the dollar are generally known as strong currencies, but they too have only 15% of their purchasing power left in gold compared to the year 2000. The graph below shows this development.

Depreciation of the Russian ruble against gold

Gold as a safe haven

From the perspective of the euro and the dollar, the depreciation of the ruble is extreme. However, if we take gold as a reference point of value, we see that our euro and the US dollar have also lost much of their luster. The purchasing power of this hard currency has also been steadily declining in recent years. Gold has thus proven to be an effective tool for maintaining purchasing power.

An additional benefit of Buy gold is that the precious metal has no counterparty risk. You are not dependent on banks or governments for access to your holdings. Especially at a time when geopolitical tensions are rising, this is an important advantage. That is also the reason why the Russian central bank and a major sovereign wealth fund in Russia have reduced their reserves in US dollars in recent years and bought more gold.

Russian savers who had secured (part of) their wealth in gold currently have less to worry about the depreciation of the ruble and the bank runs in their country. In fact, due to the increase in Gold price their purchasing power even increases. Gold also turned out to be a better safe haven for the Russians than the stock market. The Moscow stock exchange has fallen more than 30% in value since Russia's invasion of Ukraine.

This contribution comes from Geotrendlines

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.