Russia Dedollarizes to Just 24 Percent of National Reserve Currency Holdings, Increases Chinese RMB Yuan, Euro Positions

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no-dollarAnnual 2018 reports just released reveal that the Russian Central Bank reduced the dollar share of its international reserves to 24.4 percent, in 2018, while simultaneously increasing its shareholding of the Euro and the Chinese RMB Yuan to 32 percent and 14.7 percent, respectively, according to its own review of its management of foreign currency and gold assets. At the same time, the Russian banking regulator increased the share of several other currencies from 12.4 percent to 14.7 percent. These currencies included British pounds, Japanese yen, Australian and Canadian dollars, and Swiss francs.

The developments come after Russia signaled its readiness to reduce its dependence on the dollar, stressing that it does not plan to restrict transactions using the US currency. Moscow said that the goal of dedollarization is to improve the health of the Russian economy and shield it from Washington’s recent sanctions.

Interestingly, the highest yield among the actual portfolios of currency assets held by Russia was demonstrated by the Chinese RMB Yuan, which stood at 3.2 percent per annum, while the US dollar yield was just 0.35 per annum.

Russia has been persuing a dedollarization policy since Andrey Kostin, the president and chairman of Russia’s second-largest bank VTB, developed the concept, later adopted by the Russian Finance Ministry. The plan specifically stipulates a gradual shift to bilateral trade with countries in their own currencies, especially within the framework of the Eurasian Economic Union (EAEU). This has already been taking place with 70 percent of EAEU trade now being conducted in non-US dollar currencies. Russia-EU trade was also up 20 percent in 2018, despite sanctions.

Russian Industry and Trade Minister Denis Manturov has also stated that Russia was working on shifting to settlements in local currencies with the countries of the Middle East, Southeast Asia, Latin America and Africa.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “The Russian position on the US dollar is a response both to Washington’s effective control and monitoring of the global financial transactions system and a more recent trend of weaponizing the currency. While Russian trade with the United States is negligible and dedollarizing the economy unlikely to hurt the United States, the US dollar could start to lose global traction if Russian actions are taken up by other countries. Also, as new Eurasian trade corridors begin to emerge the US dollar could find itself cut out of transactions in future years. How this plays out remains to be seen however an acceleration of dedollarizing the global trade community cannot be ruled out, especially if China begins to enact a similar stance.”

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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