Less than two weeks before Vladimir Putin holds his first summit meeting with President Joe Biden, Russia has announced plans to reduce its dependence on U.S. dollars, saying it will shift a third of the liquid assets in its sovereign wealth fund from USD into euros, yuan and gold to reduce vulnerability to Western sanctions.
The $186-billion National Wealth Fund, which holds part of Russia’s oil revenues, will cut the share of dollar assets it holds from 35 percent to zero, the finance ministry said. Most of the fund’s assets will then be in euros, yuan and gold, increasing the role of China’s currency in Russia as the two countries strengthen ties.
The shift will take place as an internal transaction between the government and the Russian Central Bank, which holds around a fifth of its assets in dollars. Analysts don’t expect that share to fall quickly, Wall Street Journal reported.
The dollar pared gains on the news Thursday before bouncing back, Bloomberg reported. Analysts said the move was largely symbolic and unlikely to move markets immediately.
“Geopolitics does play a role,” Russian Finance Minister Anton Siluanov told state TV at the St. Petersburg International Economic Forum. “We’re trying to protect our investments.”
“Coming from Russia, it’s largely symbolic,” said Elina Ribakova, deputy chief economist at the International Institute of Finance in Washington. “Should there be any issues with larger U.S. dollar holders, that would be different.”
Russia’s Central Bank said on Thursday that it doesn’t expect the move to seriously affect the market. The Russian ruble was little changed, trading at 73.20 against the dollar, WSJ repprted. “Full de-dollarization of NWF indeed looks like a way to lower political risks,” said Dmitry Dolgin, chief economist for Russia at ING Bank. “As for the potential impact, it is unlikely to be market-moving.”
Peter Schiff, a Manhattan investor and precious metals dealer who is known for being bearish on the U.S. economy and the dollar, has long warned that he thinks Russia is preparing for an impending dollar crisis.
By mid-2019, Russia had sold off nearly all of its U.S. Treasury holdings and was adding to its growing gold reserves. U.S. dollars in Russian reserves fell from 46 percent to 22 percent in 2018, according to Bank of America analysts.
Schiff said in May 2019 that he thinks the U.S. uses dollars as a weapon. “Other countries don’t like this,” he said, “and to the extent that they can move away from the dollar, well then they kill two birds with one stone. And one way of doing that is to increase their gold reserves now while gold is still cheap. Because when the dollar really starts to tank, the price of gold is going to soar.”
After Russia’s wealth fund is de-dollarized, its assets will be held 40 percent in euros, 30 percent in yuan, 20 percent in gold and 5 percent each in yen and pounds, Siluanov said.
The central bank isn’t planning to resume gold purchases as a result of the wealth-fund shift, a person familiar with the situation told Bloomberg, speaking on condition of anonymity.