Russia shared on Tuesday (July 6) it has completed necessary exchange operations for eliminating the US dollar currency from the National Wealth Fund (NWF) which holds part of the country’s oil revenues, according to plans previously announced.
“As a result of these transactions, the dollar was excluded from the structure of the NWF, the stake of the British pound was reduced to 5%, shares of the euro and the Chinese yuan increased to 39.7% and 30.4% respectively, the stake of the Japanese yen was 4.7%, and the share of non-cash gold was 20.2%,” the official Russian Finance Ministry statement reads.
The plan was previously announced at the St. Petersburg International Economic Forum- the country’s flagship investment event- by Finance Minister Anton Siluanov.
“Like the central bank, we have decided to reduce investments of the NWF in dollar assets,” Siluanov told reporters, adding that the NWF will instead invest in euro, Chinese yuan and gold assets.
Later that day, Kremlin spokesman Dmitry Peskov backed the decision, saying that “the de-dollarization process is constant. It is, in fact, now visible to the naked eye.” He added that the move away from financial dependence on Washington “is taking place not only in our country, but also in many countries around the world, which have begun to experience concerns about the reliability of the main reserve currency.”
In 2020, the Central Bank of Russia (CBR) cut the dollar share in its gold and forex reserves to 21.2% as of Jan. 1, down from 24.5% a year earlier. The bank acquired 1,911.7t tonnes of gold between 2006 and 2020 and, having gradually withdrawn from the greenback over the last couple of years, has increased the proportion of gold in its reserves to about 23% in 2020, a level higher than that of the USD.
Russia’s holdings of U.S. Treasuries has also dwindled in past years with the central bank slashing its holdings in 2018.
Russia’s NWF, initially designed to support the nation’s pension system, accumulates oil revenues to increase the country’s resilience to market fluctuations and help support major national projects. The Fund is managed by the Ministry of Finance. Based on a law adopted by the Duma in December 2020, the NWF can invest in gold via its accounts held at the Bank of Russia, with the central bank fulfilling the role of an operating agent.
As of July 1, NWF stood at $187.6 billion, which is 11.7% of the projected 2021 gross domestic product. The NWF represents just a slice of Russia’s overall $600 billion worth of international reserves.
“We do not believe that MinFin’s move to ditch the USD (apparently done in order to reduce exposure to foreign policy risks) will necessarily trigger de-dollarisation of CBR reserves (which would require external open market transaction).” Dmitry Dolgin ING Chief Economist, Russia wrote last month.
The move comes amid deteriorating relationship with the US-Washington imposed sweeping sanctions against Russia in April-and as Russia has been pursing closer trade and finance ties with China and the rest of the region. The new asset allocation structure of the NWF reflects these changing dynamics, the growth of Asia and includes an increased role for the renminbi.
Russia’s de-dollarization drive continues
Russia will continue to ditch US dollar in the country’s economy, according to Deputy Minister of Foreign Affairs Alexander Pankin. “There is no doubt about the expediency of continuing to work on further reducing the share of the dollar in national and international reserves, as well as its use in settlements with foreign partners,” the official said, as quoted by Interfax.
Pankin added that, in the long run, the greenback could be replaced by other foreign currencies and digital assets. However, he that eliminating the dollar is associated with “certain costs for businesses and government financial transactions.”