Russia to abandon dollar as part of National Wealth Fund

Russia to abandon dollar as part of National Wealth Fund
Photo: Moscow-Live

The Kremlin makes another step towards reducing Russia’s dependence on the dollar after years of steadily increasing US restrictions. The Ministry of Finance will rebalance the ratio of currencies making up the National Wealth Fund in favour of other currencies.

Russia is going to eliminate the US dollar from its oil fund to reduce vulnerability to Western sanctions, reports Bloomberg pointing out that the move comes ahead of the first meeting of Joe Biden and Vladimir Putin scheduled for 16 June. According to the country’s Minister of Finance Anton Siluanov, the National Wealth Fund will shift its dollar holdings into euros, yuan and gold. “Geopolitics does play a role,” Siluanov said at the St Petersburg International Economic Forum explaining that Russia was trying to protect its investments.

The fund, which holds savings from Russia’s oil revenues, is used to help offset shortfalls during periods of low oil prices. Currently, the US currency accounts for about a third of all liquid assets included in the Russian safety cushion. The same amount is held in euros, and the rest is spread across yuan, gold, yen and pounds. After the change, 40% of the fund’s assets will be held in euros, 30% — in yuan, 20% — in gold, while yen and pounds will account for 5% each, said Siluanov. On 3 June, his ministry announced that regulations reflecting new proportions had been amended the previous month.

According to the country’s Minister of Finance Anton Siluanov, the National Wealth Fund will shift its dollar holdings into euros, yuan and gold. Photo: minfin.gov.ru

“The Central Bank can make these changes to the Wealth Fund without resorting to market operations,” considers Sofya Donets, an economist at Renaissance Capital in Moscow. Siluanov said that Russia could make the change within a month adding that it was up to the regulator to determine whether to adjust the distribution of its overall reserve holdings. The Ministry of Finance said that it would report later when the actual holdings were changed. The Central Bank reports the currency distribution of its reserves with a six-month lag and doesn’t comment on plans for foreign exchange reserves. However, the bank’s head Elvira Nabiullina assured that the regulator took the structure of the government’s reserves into account.

Russia’s decision “is logical in the context of the stubborn standoff with the US”, considers Oleg Vyugin, a former senior official of the Central Bank. “But in terms of risk/return, exiting dollar assets to replace them with the ones they list is most likely to be economically unattractive,” he says. Deputy Chief Economist of the Institute of International Finance in Washington Elina Ribakova believes that the move is largely symbolic. “Should there be any issues with larger US dollar holders, that would be different.”

By Anna Litvina