Russia Veers Huge Reserves Away From Major Currencies

At nearly a half-trillion dollars, Russia has the world’s third largest international monetary reserves and it’s decided it’s time to shop for currencies outside of the usual suspects. Specifically, Russia has begun adding the Canadian dollar to its mix and is now also looking at the Australian dollar.

According to Bloomberg:

“U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4.

“President Dmitry Medvedev last year suggested Russia would reduce its use of the U.S. dollar as a reserve currency after the greenback lost 34 percent of its value against the euro in 2 ½ years. The euro fell to a four-year low of $1.1877 on June 7 and has dropped 22 percent since Nov. 25 on investor concern policy makers may fail to contain Europe’s debt crisis.

“Russia’s push to diversify reserves ‘is more a result of their desire to do something in response to the extreme volatility of the dollar and the euro,’ said Elena Matrosova, a Moscow-based economist at BDO International, the financial consultancy that lists the central bank among its clients. The Canadian or Australian dollar ‘can’t be truly called international reserve currencies because of their very limited liquidity,’ she said.”

This announcement comes after a recent statement by the world’s $2.5 trillion reserves leader, China, that it would “improve its [foreign-exchange reserves] diversification strategy.” It’s becoming a more common theme to look outside the currency majors and, in Russia’s case, at two commodities-driven economies. Perhaps we’ll see China take a similar approach.

You can read more details in Bloomberg’s coverage of Russia buying Canadian and Australian dollars for the first time.

Best,

Rocky Vega,
The Daily Reckoning

The Daily Reckoning