Putin's Big Dollar Dump Cost Russia $8 Billion in One Year

(Bloomberg) -- The first year of President Vladimir Putin's experiment in diversifying away from the U.S. dollar cost Russia about $7.7 billion in potential returns.

Russia's central bank added exposure to underperforming currencies such as the euro and yuan just as it missed out on a 6.5% rally in the greenback. If it had maintained the previous dollar-heavy structure of it $531 billion reserves, gains for the year through March would have totaled around 3.8%, according to Bloomberg calculations.

"This is the economic cost of addressing geopolitical concerns," said Elina Ribakova, deputy chief economist at the Institute of International Economics in Washington. "It's hard to judge yet if it was worth it. There was a cost this year, but it's a long-term investment."

Russia's central bank publishes the data with a six-month lag, so more recent numbers are not yet available.

Putin's dollar dump in the second quarter of last year was part of a broader strategy to "de-dollarize" the Russian economy and lower its vulnerability to U.S. sanctions amid deteriorating relations with Washington. The diversification made Russia the biggest holder of yuan reserves globally, accounting for about 70% of the total, according to Goldman Sachs Group Inc.

The move was a "necessary step" in the face of rising geopolitical tensions, Bank of Russia Governor Elvira Nabiullina said in May. "We aren't currency speculators, we're not trying to make short-term money from fluctuating exchange rates," she added.

Still, completely eliminating the dollar from reserves would involve "excessive risks" because dollars could be needed in a crisis to cover debt obligations, Alexey Zabotkin, the head of the Bank of Russia's monetary-policy department said Monday, according to Interfax.

The big Chinese bet wasn't all bad news for Russia, as the currency losses were partly offset by higher returns on China's local bonds -- 4.4% in the year through March, compared with 1.4% for Treasuries, according to a report published on the central bank's website.

Russia has also been shrinking the role of the dollar in its trade with the European Union, China and India. The share of euros in Russian exports to the EU climbed to 42% in the first quarter of this year from 32% a year earlier, according to central bank data. State oil giant Rosneft tendered to sell a cargo of crude in euros for the first time this month.

Some of the losses incurred from holding yuan and euros will have been offset in the last few months by Russia's growing holdings of gold. The value of the nation's gold jumped about 40% to more than $100 billion in the past year and the metal now makes up the biggest share of Russia's total reserves since 2000.

Currency and gold purchases meant that Russia's total reserves grew by $27 billion in the year through March.

"It would have been hard to forecast the extent of the trade tensions at the beginning of the year," Ribakova said. "They are trying to develop trade with China so it does make sense to keep some money in yuan."

To contact the reporter on this story: Natasha Doff in Moscow at ndoff@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Alex Nicholson

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.


More Related News

Trump Lawyers Still Plan to Start Saturday: Impeachment Update
Trump Lawyers Still Plan to Start Saturday: Impeachment Update

(Bloomberg) -- House managers will wrap up their case against President Donald Trump on Friday, completing three days of arguments in the Senate impeachment trial. Trump's lawyers are set to begin presenting his defense on Saturday.Here are the latest developments:Trump Lawyers Still Plan to Start Saturday (10:19 a.m.)Trump's lawyers still plan to open their defense on Saturday, an administration official familiar with the matter said Friday, hours after the president tweeted that Saturday is the "Death Valley" of television."After having been treated unbelievably unfairly in the House, and then having to endure hour after hour of lies, fraud & deception by Shifty Schiff, Cryin' Chuck...

Bernie Sanders Jumps to First in New Hampshire Poll
Bernie Sanders Jumps to First in New Hampshire Poll

(Bloomberg) -- A new poll shows Bernie Sanders as the top pick for New Hampshire voters after support for the senator nearly doubled over the past month.Sanders, who is from neighboring Vermont, jumped from fourth to first in a WBUR poll out Thursday.He led the pack by double digits with 29%, up from 15% in December, followed by Pete Buttigieg with 17%, Joe Biden with 14% and Elizabeth Warren with 13%.Aside from Sanders, all other candidates moved between 0 and 3 percentage points. The poll was conducted from January 17-21 and has a margin of error of 4.8 percentage points. WBUR is the Boston NPR affiliate.Sanders led among voters under 45 with 37%. Among those voters, Buttigieg followed...

Anti-Trump GOP Group Targets Maine
Anti-Trump GOP Group Targets Maine's Collins: Impeachment Update

(Bloomberg) -- House managers, led by Intelligence Chairman Adam Schiff, present their case for removing Donald Trump from office for a second day Thursday in the president's Senate impeachment trial.Here are the latest developments:Anti-Trump GOP Group Targets Maine's Collins (10:18 a.m.)A group of prominent conservatives who oppose Trump launched an ad campaign accusing Senator Susan Collins, a moderate Republican seeking re-election in Maine this year, of "covering for Trump" as the Senate begins his impeachment trial.On Tuesday Collins voted with Senate Majority Leader Mitch McConnell against Democratic requests to subpoena Trump administration officials and documents. She was the...

Nigeria Surprised by News of Possible U.S. Travel Restrictions
Nigeria Surprised by News of Possible U.S. Travel Restrictions

(Bloomberg) -- Nigeria's government was surprised by the news that the U.S. is considering travel restrictions on its citizens and the ban would mean officials will have to find new ways to meet with investors, Finance Minister Zainab Ahmed said.Nigeria is one of seven countries, more than half of which are in Africa, included in a list that may be affected if the Homeland Security Department's recommendation to expand restrictions is approved, according to a person familiar with the matter. President Donald Trump is reviewing it. The other African states targeted because of security concerns are Eritrea, Sudan and Tanzania."It will mean restrictions in being able to meet with investors...

Biden Holds Onto National Lead in New Poll
Biden Holds Onto National Lead in New Poll

(Bloomberg) -- Joe Biden is holding onto his lead among Democratic voters according to a national Monmouth University poll out Wednesday.Among registered voters, Biden carried 30% followed by Bernie Sanders with 23% and Elizabeth Warren with 14% less than two weeks before the first voters weigh in. Patrick Murray, director of Monmouth University's Polling Institute, says the national numbers have remained stagnant but there's room for upset after the first caucus and primary.Michael Bloomberg had 9%, followed by Pete Buttigieg with 6%, Amy Klobuchar with 5% and Andrew Yang with 3%. Since the last Monmouth University poll a month ago, Biden has risen 4 percentage points, Sanders 2 and...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Economy