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Bloomberg Estimates Russia's Losses from De-dollarization of Reserves
October 21, 2019 12:13

Russia lost almost $ 8 billion in potential revenue during the first year after a decline in the dollar’s share of international reserves, Bloomberg claims. While the Central Bank invested in cheaper euro and yuan, the American currency went up in price.

For the first year of the policy reducing the share of the dollar in the currency reserves of the Central Bank, Russia received less than $ 7.7 billion, Bloomberg writes. The Bank of Russia, trying to reduce sanctions risks, invested in euro and yuan and missed the dollar growth by  6.5%, the agency states. According to  calculations, if the Central Bank had retained the previous structure of stocks based mainly on the dollar, they would have increased by about 3.8% by March 2019. The Central Bank publishes data on the structure and results of reserve management with a delay of six months, so there are no more relevant data yet.

“This is the economic cost of engaging in geopolitics. It’s hard to say if it was worth it. There were losses this year, but this is a long-term investment,” Elina Rybakova, deputy chief economist at the Institute of International Finance comments.

From March 31, 2018 to March 31, 2019, the dollar’s share in the Central Bank’s assets almost halved - from 43.7% to 23.6%, according to the Bank of Russia report. The yuan share almost tripled from 5% to 14.2%. The share of the euro increased from 22.2% to 30.3%. Changing the structure of reserves was part of a broader strategy to de-dollarize the Russian economy and reduce its vulnerability to US sanctions, Bloomberg writes. In May, the head of the Central Bank, Elvira Nabiullina, called this step necessary and emphasized: “We are not currency speculators, we are not trying to earn short-term money on exchange rate fluctuations.”

Switching to the euro

Currency diversification has made Russia the largest owner of reserves in RMB, Bloomberg writes, citing data from the Goldman Sachs Group. The bet on Chinese assets was not entirely a failure, the agency notes: losses on the yuan exchange rate were partially offset by higher yields on Chinese bonds compared to US treasury bonds (4.4% versus 1.4% during the year ending in March), follows from the Central Bank document. “It was difficult to predict the degree of trade tension [between the US and China] at the beginning of the year. Russia is trying to develop trade with China, so it makes sense  to keep part of the funds in RMB,” Rybakova said.

Why Russia needs  de-dollarization  

The purchase of currency and gold led to the fact that Russia's total reserves grew by $ 27 billion for the year that ended in March 2019, Bloomberg summed up.

The Russia president has repeatedly called for a reduction in the dollar’s share in international payments and domestic reserves. He argued that the currency was becoming unreliable due to US policies, including sanctions.    

It is wrong to completely exclude the dollar from foreign exchange reserves, Alexei Zabotkin, the director of the Central Bank department, said in the State Duma on October 14. He noted that reserves may be needed in case of crisis, when it is necessary to pay off obligations.

Read More Articles about Russian Business

Author: Anna Dorozhkina

Tags: Russian business Russian economy Russian government   

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