Russia has more gold than dollar reserves for the first time

Russia has more gold than dollars in its reserves for the first time in history, according to a New report of the central bank. At the end of June 2020, gold reserves accounted for 23% of total reserves, while dollars represented a 22% share at the time. By comparison, in 2018 the central bank still held more than 40% of its reserves in dollars. This shift is part of Russia's long-term strategy to become less dependent on the U.S. currency.

For the past two years, Russia has had a significant portion of its dollar reserves Converted to other currencies, such as the euro and the Chinese yuan. In fact, the euro accounted for more than 30% of total reserves last year. This is not surprising, since Russia are increasingly using the euro in trade with both Europe and China. At the end of 2020, the European currency was even the Most Used Trading Currency. The role of the Chinese yuan is also becoming increasingly important, as this currency accounted for 12% of Russia's reserves. The graph below shows the year-on-year changes.

Russia now has more reserves in gold than in dollars (Source: Central Bank of Russia)

De-dollarization

Russia has been trying to become less dependent on the US dollar for years. In recent years, he has complained that the US government is increasingly treating the dollar as a Political weapon used. By means of sanctions, the US is trying to get other countries back in line. Consider, for example, the sanctions against Iran's banking system. These sanctions undermine confidence in the dollar, according to the Russian president.

In order to limit the effect of any sanctions as much as possible Russia has added more other currencies and gold to its reserves. For example, the country added $40 billion worth of gold to its reserves over the past five years. That turned out not to be a bad investment, because the market value has also risen considerably due to higher gold prices. In November, the gold reserve was worth more than $133 billion.

Gold as the ultimate reserve

Like the central banks in the Eurosystem, Russia also puts its gold holdings on the balance sheet at market value. This means that it can absorb a possible write-down on the value of foreign exchange reserves with a higher gold price. In doing so, their gold policy deviates from the American course.

Central banks have added a lot of gold to their reserves over the past decade added. They do this not only for diversification, but also to reduce counterparty risk. This is because a physical gold supply in your own country offers protection against economic sanctions from any country. Under all circumstances, central banks can use their gold supply, because it is 100% owned.

This contribution comes from Geotrendlines