Russia to cut dollar share of its $125bn sovereign wealth fund

Russia wants to reduce the dollar’s share of its $125bn sovereign wealth fund as part of a Kremlin plan to “de-dollarise” the economy and shift towards the euro and the renminbi.

Vladimir Kolychev, deputy finance minister, told reporters on Wednesday that Moscow wanted to cut the National Wealth Fund’s $45bn dollar holdings to mirror an earlier move by the central bank away from the greenback.

“I can say for certain that the dollar’s share will be lower. We are looking at different reserve currencies that meet IMF standards, including the yuan [renminbi] and those of other countries,” Mr Kolychev said, according to Interfax.

“Of course, geopolitical risks are one of the main reasons why our reserve structure is changing,” he added.

Russia’s central bank slashed its dollar holdings following a round of US sanctions in spring 2018 that knocked 20 per cent off the rouble’s value against the dollar. Moscow reduced its US Treasury debt volumes from $96bn to $8bn in just 18 months while halving its total dollar reserves to 22 per cent of the $542.9bn total. The switch pushed the euro’s stake up from 22 per cent to 32 per cent and the renminbi from 5 per cent to almost 15 per cent.

“In trade export volumes, the dollar has 62 per cent against 21 for the euro, for import the dollar has 35 per cent against 30 for the euro, and for foreign debt the dollar has 49 per cent against 18 for the euro. So the reserves are being rebalanced with politics, not economics in mind, and for entirely understandable reasons,” said Sofya Donets, chief Russia and CIS economist at Renaissance Capital.

Mr Kolychev said the wealth fund’s dollar reductions would not exactly match the central bank’s totals but would be “similar”.

Russia has bulked up the Rbs8tn National Wealth Fund by storing away extra revenue on all oil sold at more than $40 a barrel since 2017. As of October 1, it also had €39bn in euros and £7.6bn in sterling. The total is considered part of the central bank’s foreign reserves but is managed by the finance ministry.

“We have now a situation where a significant portion of FX reserves — those in the NWF — do not comply with Russia’s expressed desire to have a certain currency distribution of foreign holdings,” said Ivan Tchakarov, chief Russia and CIS economist at Citi. “Ultimately, having a certain distribution of currency reserve holdings is probably a decision taken at a political level.”

The reductions are part of a broader “de-dollarisation” that President Vladimir Putin has backed as a way to insulate Russia from US sanctions. Maxim Oreshkin, the economy minister, told the Financial Times last month that Russia planned to sell future oil and gas exports in euros and roubles.

The finance ministry has abandoned issuing sovereign debt in dollars and is exploring a renminbi-denominated government bond for early 2020. Russia is also looking at mechanisms to boost trade in roubles and local currency with partners such as Turkey.

“They will try to move away as much as they can. It is a geopolitical objective,” said Elina Ribakova, deputy chief economist at the Institute of International Finance.

Mr Kolychev said that a general shift towards trading in euros with Europe would ease the change. “Foreign trade settlement with our European partners is mostly switching to euros from the dollar even on goods where pricing was traditionally always in dollars, like oil and gas,” he said.


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