Why Russia Dumped the Dollar

Why Russia Dumped the Dollar

The Central Bank of Russia (CBR) commonly factors in all kinds of risks when allocating the country’s reserves, said the CBR chief, commenting on a major sell-off of US Treasury bonds.

“We pursue the policy of safe and diversified holdings,” CBR Governor Elvira Nabiullina said while answering questions before Russia’s lower house of parliament. “We assess financial, economic and geopolitical risks while allocating the country’s financial reserves.”

The comments came shortly after the latest statistics showed that in April, CBR dumped some $47bn-worth of US securities, accounting for nearly half of Russia’s overall holdings. The step moved Russia six places down to 22nd place on the list of major foreign holders of US debt. Nabiullina refused to say what the central bank did since April.

“We reveal the information about investments with a time lag of around six months. That’s the Central Bank’s policy.” she said. “We do not disclose the most recent information, as we are the biggest holder of Russia’s reserves. When we publish the data, the entire new structure will be clearly seen.”

A treasury bond is a fixed-interest government debt security with a maturity of more than 10 years. Treasury bonds make interest payments twice a year. The gradual sell-off of US sovereign debt started in 2011, and has intensified over recent years with numerous rounds of sanctions imposed by Washington against Moscow. So far, Russia has slashed its holding by more than two-thirds, from over $150 billion to less than $50 billion.

Global geopolitical tensions have forced some other countries to cut their deposits. Turkey, which started repatriating its gold from the US, nearly halved its US Treasury holdings from almost $62 billion in November to $38.2 billion in April. Norway has reduced its share by 40 percent since September 2017, from $64.1 billion to $39.3 billion in April.

The Central Bank of Russia keeps all its bullion at home, since only in Russia can its gold be completely safe, according to Anatoly Aksakov, the chairman of the State Duma Committee on Financial Markets.

Answering a question about Turkey’s decision to repatriate its gold from the US Federal Reserve, Aksakov said: “We do not have a gold reserve in the US, we have only Forex (foreign exchange) reserves abroad. No one can lay hands on our gold.”

Russia’s reserves consist of foreign currency, Special Drawing Rights (SDR) holdings, reserve position in the IMF and physical gold. The amount of physical gold in Russian reserves has grown by 52.88 tons and reached 1,861.1 tons as of April 1.

After Western sanctions on Russia were imposed in 2014, the country has significantly boosted the share of gold in its reserves from 7.8 to more than 15 percent.

The world’s largest gold buyer and the third-largest producer, Russia has substantially increased purchases in recent years, including gold mined in the country.

The CBR has more than doubled the pace of its bullion purchases. The government wants to add to reserves, as the Kremlin sees the precious metal as a safe haven at a time of geopolitical turbulence. Russia is the sixth-largest gold owner after the United States, Germany, Italy, France, and China. Since 2000, the country’s gold reserves have surged 500 percent.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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