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Russia Has Found No Place Yet to Invest Reserves After Sanctions

Russia’s central bank conceded it’s found no clear alternatives to the world’s major reserve currencies after sanctions over the war with Ukraine left it in possession of only yuan and gold

The Russian imperial double-headed eagle coat of arms, the emblem of Russia's central bank, sits on a ruble banknote in this arranged photograph in Moscow,
By Bloomberg News
April 18, 2022 | 08:14 am

Bloomberg — Russia’s central bank conceded it’s found no clear alternatives to the world’s major reserve currencies after sanctions over the war with Ukraine left it in possession of only yuan and gold.

Before the invasion, the Bank of Russia spent years reducing exposure to the dollar, bringing its share to just under 11% at the end of last year. But more than a third of the total was in euros -- on top of additional investments into currencies such as the British pound and yen -- making it possible for international governments to seize about half of the stockpile in retaliation for President Vladimir Putin’s attack.

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More than a month into the war, the central bank has yet to identify other options, according to Governor Elvira Nabiullina. Speaking Monday in front of a parliamentary committee in Moscow, she said it was too early to draw lessons for what Russia should do differently.

“We need to look toward the future, but at the moment I am struggling to give specific suggestions,” she said. “The list of the countries issuing liquid reserve currencies is limited and they are the ones that have taken hostile measures and limited our access.”

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Away From Dollar | Russia boosted share of euro, yuan, while cutting dollar in its international reservesdfd

The curbs imposed on the Bank of Russia meant it couldn’t intervene in the market to defend the ruble (USDRUB), forcing it to impose capital controls and deliver an emergency interest-rate increase to calm markets. Its reserves peaked at a record $643.2 billion on Feb. 18 and then declined sharply, before stabilizing in recent weeks.

The yuan accounted for 17.1% of the total at end-2021, up from 12.8% a year earlier, while gold’s share was down slightly at 21.5%.

Russia's international reserves have stabilized after falling sharplydfd

Asked if the central bank planned to retaliate against countries that blocked Russian assets, Nabiullina said it’s “certainly planning such legal actions.”

But “they must be very carefully thought through, justified, so that we get the desired result,” she said. “And we are preparing for this.”