Russia converts dollar reserves to euro and yuan

Russia's central bank has $101 billion worth of dollars in the past year Converted to euro and yuan. This is evident from a new report which was released by the central bank on Wednesday. In total, $44 billion worth of both European and Chinese currencies were added to the reserves. It also invested $21 billion in the Japanese yen.

As a result of these adjustments, the central bank now has more euros than dollars in its reserves. The euro's share rose from 25.1% to 32% in a year, while the dollar's fell from 46.3% to 21.9%. The Chinese yuan accounts for nearly 15% of Russia's total reserves, ten times the global average. According to IMF figures, a quarter of all global yuan reserves are on the Russian central bank's balance sheet.

Diversification

Russia wants to become less dependent on the US dollar and is therefore looking for diversification in other currencies. Also, the country remains Buy goldas a form of insurance against political and economic risks. In the past, the dollar was the most important currency for Russia, but now the euro seems to be taking over this role. The Chinese yuan is also gaining market share in trade between Russia and China.

This change of course is not only symbolic, but also practical. After all, Russia trades much more with Europe and China than with the United States. On top of that, the U.S. dollar is a growing risk, due to the ongoing threat of new economic sanctions. Figures from the central bank show that Russia already held less foreign exchange reserves in the United States over the past year. Since March, the share of reserves held by U.S. financial institutions has fallen from 29% to just 10%.

Russia exchanges dollars for euros and yuan (Source: Central Bank of Russia)

Russia expands reserves

At the end of last year, the central bank of Russia had more than $460 billion of reserves. This makes Russia one of the top ten countries with the largest reserves. As a result of diversification towards euros and yuan, the average quality of foreign exchange reserves on paper has declined. After all, credit rating agencies give a lower credit score to several European countries and China. The trade-off to include more gold and other currencies in the reserves therefore appears to be more of a political than economic one.

Foreign exchange reserves denominated in euro and yuan have lower credit score than dollar reserves (Source: Central Bank of Russia)

'The dollar is letting us down'

Russian President Vladimir Putin said in his Annual Q&A Session with the international press that he has less confidence in the stability of the dollar. He said several countries are looking for alternatives to the U.S. currency for that reason. At the end of last year, the European Commission came up with a proposal to pay for oil in euros as standard from now on. In this way, European countries and Russia can reduce their dependence on the American currency.

This contribution was made from Geotrendlines