Russia’s gold reserves surpass dollar holdings

Last year, gold overtook US dollar in Russia’s safety cushion. The Kremlin’s intention to ditch the American currency was not the only reason: the share of gold substantially increased in 2020 due to a surge in prices amid the COVID-19 pandemic.

The value of Russia’s gold reserves passed its US dollar holdings for the first time in history last year, says The Moscow Times citing the Central Bank’s data. As of 30 June 2020, Russia held $128,5 billion in gold, which was almost $4 billion more than the value of US dollars in its reserves. According to the data published with a six-month delay, gold represented 22,9% of the country’s total international reserves, which stood at $561 billion at the end of June 2020. The euro is Russia’s top reserve holding with the value of more than $165 billion.

Russia started buying foreign currencies up using profits from oil exports after the economic crisis of 2014-2016 in order to create a substantial rainy day fund. However, the Kremlin aggressively shifted its foreign reserves policy from US dollars to gold and other currencies, such as the Chinese yuan, three years ago. According to Timur Nigmatullin, investment manager at Otkritie Broker, countries usually prefer a mix of hard currencies rather than metals in their reserve portfolio. “This is atypical behaviour for a country of Russia’s size and such a large economy,” he said.

Russia had been the world’s largest gold buyer for years. Photo: History of Geo

Russia had been the world’s largest gold buyer for years, but it cut its purchases back at the beginning of 2020 and completely suspended gold buying at the height of the pandemic in March. Head of the Central Bank Elvira Nabiullina said in July that after the massive purchases of recent years, she was satisfied with Russia’s level of gold reserves.

Nonetheless, the share of gold in Russia’s reserves surged in 2020 thanks to a sharp increase in prices for the precious metal in the first months of the coronavirus pandemic. In early August, prices hit a record high, so the value of Russia’s gold holdings probably increased further.

The dollar is still the world’s pre-eminent reserve currency. According to the International Monetary Fund, the US currency accounts for more than 60% of all foreign currency reserves globally.

By Anna Litvina