BUSINESS

Russia Cools to Dollar As it Invests in Stability

By Artyom Danielyan

Reuters

ST. PETERSBURG — Russia has raised the share of euros in its growing central bank reserves, a top central banker said on Thursday, confirming Moscow’s cooling to the dollar as a dependable store of value.

The announcement by central bank First Deputy Chairman Alexei Ulyukayev came after Finance Minister Alexei Kudrin said Russia would keep its $71.5 billion budget stabilisation fund equally in euros and dollars, with a small share of sterling.

“The share of euros has increased,” Ulyukayev told Reuters in St Petersburg, without elaborating. Euros have accounted for 25-30 percent of the central bank’s reserves in the past.

Russia, the world’s No.2 oil exporter, has been piling up reserves at a breakneck pace as the central bank buys up petrodollars and prints rubles to defend a competitive exchange rate. Its gold and forex reserves rose to a record $236.7 billion in the week ending May 19, up 36 percent over the year to date.

Kudrin had already questioned the weakening dollar’s role as a standalone reserve currency. Late on Wednesday, he said the stabilisation fund would be invested 45 percent each in dollars and euros, and 10 percent in sterling.

But he signalled a delay to investing the fund — which gathers windfall tax revenues when the oil price exceeds $27 a barrel and is now held in rubles — in AAA-rated government bonds as allowed under new rules approved by the government.

He said instead the fund would be put on deposit at the central bank to earn interest, meaning that the switch from rubles to dollars, euros and sterling would be a bookkeeping entry and have no impact on forex markets.

“As far as I know, this will not affect the market, I do not think they (the central bank) will need funds from the market,” Kudrin told reporters.

Ulyukayev confirmed that the central bank’s reserves — of which the stability fund forms a part — were sufficiently large to cover the fund’s currency allocations.

“The volume of our gold and forex reserves is over three times bigger than the oil fund, so there is no such problem,” he said.

Speculation about a shift in state reserves, mainly from China, Asian economies and major oil exporters, was key in dragging down the greenback in recent years.

But currency strategists doubt there would be any short-term impact on the dollar from the Russian news.

“Although it may also be a signal of similar moves to come from other reserve managers, it probably suggests that some respite from dollar selling may be seen in the short run,” The Royal Bank of Scotland said in a market commentary.

Global central banks which hold more than $4 trillion in forex reserves have become more active currency managers and increasingly play a strong role in the $1.9 trillion-a-day forex market as well as the bond markets.

Oil exporters have received huge petrodollar inflows in the past few years, a major part of which has been ploughed back into risk-free U.S. Treasuries. But they have also made efforts to spread their risks by diversifying into euros and sterling.

More stories by this section:

Flying Finns Eye City’s New Investments | IN BRIEF | Gref Says Police Suffocating Small Firms | MEDEM, Your Medical Home Away From Home! Medical Tourism With MEDEM International Clinic & Hospital

Or take part in the discussion below.