In September 2010 we were curious about what countries besides Greece and
Ireland were in serious economic trouble. Even without the eruption of
Eyjafjallajökull during April 2010
Iceland could be considered to have already
collapsed. While the impact of economic tremors in Portugal and especially Spain
were certainly of concern, we were more impressed with the dire situation in an
eastern European country. Oddly, no known earthquakes there - ever. No tsunami
danger either. Although
Belarus is landlocked, chaos and decline there would have
considerable impact, to varying degrees, on neighbors like Lithuania and Latvia,
as well as Poland and Ukraine. Russia is just too big an economy to be influenced
by events in Minsk. Among statisticians, currency exchange rates have their
admirers as being pure numbers. One does have to be somewhat careful about
intra-day trading, and the volumes being traded need to be included - much like
stocks. There are two unique problems with currency rates: one is when the
currency is pegged to another currency or is otherwise stabilized by government
intervention. The second problem is when the currency is either attacked or
re-valued. In a numerical sense, revaluation resembles stock splits. Our models
were insistently predicting the following for Belarus: rising inflation, poverty and
unemployment; declining foreign currency reserves; increases to a limit in
external debt; drops in imports and a dramatic change in currency exchange rates.
In question was the slope and "distance" of the change in currency rate. At the
time, the Belarusan ruble was trading at around 3,000 rubles to the US dollar. Our
models suggested a threshold of about 4200 rubles to the dollar: once this was
passed it was not obvious how Belarus could maintain an economy. Worse, we
could not see a strategy that prevented the decline. At the time, the United States
had no ambassador in Minsk, and Belarus had no ambassador in Washington, so
even if we had had a tactical suggestion, it was not obvious who to tell. If only there
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