Russia is going to stop investing money of its National Wealth Fund in dollar assets. At the same time the Russian government step by step ramps up shares of euro and gold.
According to the Russian Ministry of Finance, the share of the U.S. dollar in the National Wealth Fund has been decreased from 35% to zero; the British pound sterling decreased from 10% to 5% while shares of the euro and yuan were increased from 35% to 40% and from 15% to 30% respectively. The share of the Japanese yen didn’t change (5%). Moreover, the fund has started to invest in such a new asset as gold (20%).
The new policy in investing aims to preserve the NWF money and is based on recent macroeconomic and geopolitical trends. The pivot has also taken into account all the government’s decisions on the dedollarization of the Russian economy, according to the agency.
“The U.S. dollar used to account for 35% of our assets. Now, we are going to replace this currency with the Chinese yuan and euro because these currencies are issued by countries that can be considered leading trade partners of Russia. Gold is another asset that can serve as a safe haven for the fund’s money,” the Ministry of Finance said.
Some experts doubt that the decision to get rid of dollar assets in the National Wealth Fund can be justified by economic reasons.
“Many times Russia has been threatened with sanctions and a hypothetical disconnection from SWIFT. As a result, Russia is not ready to rely on dollar assets. So, this is a politically motivated decision,” said Aydarkhan Kusainov, former advisor of the head of the National Bank of Kazakhstan.
As he noted, about a year ago some members of the U.S. Senate even suggested canceling part of Chinese debts and use this measure as a sanction against China.
“In a certain way, this is a sign that you can’t fully rely on the U.S. as a creditor. All that sanctions narrative and a trade war might be used by the U.S. as a justification for such initiatives and from this point of view, economic and political decision-makers in America may act unpredictably,” the expert said.
The Russian wealth fund’s decision to not invest in the U.S. dollar is a strong precedent, according to Kusainov.
“The sixth largest world economy (in terms of purchasing-power parity) has clearly said that it doesn’t want to use the dollar as an asset. This is a big deal. Probably, the Chinese can do the same and start to decrease the share of assets in U.S. dollars,” the economist stated.
It doesn’t seem that the decision somehow can affect the rate of the Russian ruble. “Russia invested in the U.S. debt not so much. It won’t change anything globally or in Russia. However, China, which possesses one trillion dollars of the American debt, is different. If this country would decrease the U.S. debt to zero within just one month, it would harm the entire world, that’s for sure,” added Kusainov.
From One Pocket to Another
Co-founder of Movchan’s Group Andrey Movchan agrees. As he noted, the National Wealth Fund has just sold its dollars to the Bank of Russia and acquired other assets: gold and foreign currency.
“The share of U.S. dollars in overall Russian gold and foreign currency reserves didn’t change. The central bank has to sell this money on the external markets to change the ratio of its reserves, which didn’t happen,” Movchan said in an interview to the Kursiv edition.
The core Russian commodity product is oil, which has been traded for dollars. “Our cash flow is generated in dollars. If sanctions would affect this, our export will stop. So, it doesn’t make any sense to avoid dollars. We can’t change the currency rate and it wouldn’t help us” the expert said.
According to Andrey Kostin, the head of the bank of VTB, the decision by the government is a “desperate measure.” He’s made this statement in an interview with Bloomberg TV. “We are not against the dollar or America, but after the anti-Russian sanctions have been rolled out we have seen many times how America uses the dollar as a weapon against the Russian finance sector and industry,” RIA Novosti news agency reported citing Kostin.
The Russian government has decided to change the structure of assets within its National Wealth Fund last year. In April 2020 the government allowed the fund to invest in Chinese bonds and CNY. Later, Russia has decided to add to the NWF basket the Japanese yen. Moreover, in February 2021, both currencies were included in the structure of the fund.
According to the Russian Ministry of Finance as of May 1, the total value of the NWF assets reached $186 billion. Gold and foreign currency reserves are more than $601 billion in total.