Russia ruble China yuan

Russia doubles share of gold and Yuan in its rainy-day fund

Russia’s Finance Ministry said in a statement on Friday (Dec. 30) the maximum possible share of Chinese yuan in its National Wealth Fund (NWF) had been doubled to 60% and gold to 40%. The ministry also said its accounts in British pounds and Japanese yen at the central bank have been reduced to zero.

“The Russian finance ministry is continuing its consistent reduction of the share of currencies of ‘unfriendly’ states in the structure of the National Wealth Fund’s assets,” the ministry’s statement read. Of all “friendly” assets, the yuan is the most appropriate currency for the country’s reserves, Finance Minister Anton Siluanov said last week. Russia considers countries that have not joined in with Western sanctions as “friendly”.

“From January next year, the budget rule will work. <…> We will make an assessment of monthly indicators. Accordingly, we will make a decision on replenishing or not replenishing the NWF and in what currency: in rubles, in yuan, and so on. In order to hedge exchange rate risks, we always did it in foreign currency. Among the currencies of friendly countries, the yuan has the characteristics of a reserve currency and sufficient liquidity on our domestic foreign exchange market to the greatest extent. Therefore, the NWF will be replenished in this currency,” Siluanov said.

(Source: Russia’s Central Bank estimates by Bloomberg)

The move signals Moscow’s commitment to de-dollarization designed to reduce its dependency on Western finance. After the West blocked Russia’s central bank from dealing in U.S. dollars, euros and pounds, Moscow accelerated a campaign to shift its substantial reserves into more accessible currencies.

Daily yuan-rouble trading volumes on the Moscow Exchange, Russia’s largest bourse, are already exceeding dollar-rouble trades on some days, according to Refinitiv data, a trend set be to accentuated in 2023 as financial links between Moscow and Beijing continue to intensify.

What Bloomberg Economics says:

“The Finance Ministry’s move will have little immediate market implications for two reasons. First, the rule describes how the Bank of Russia should allocate windfall oil and gas revenues, i.e. revenues above 8 trillion rubles a year, but reduced oil export suggests there’ll hardly be such revenue in 2023. Second, the Bank of Russia will not need to sell or buy any assets on the open market to accommodate the new structure — this can be done inside the central bank’s balance sheet” -Alexander Isakov, Russia economist.

Bottom line, according to Zero Hedge:

“Russia is buying gold and swapping some of it for Yuan for trade and reserve diversifitication. It’s that simple. The Yuan in turn is implicitly backed in part by Gold. Russia does not act monetarily without China’s approval. It ends in protracted economic pain for all, or War now. We think the next western move financially is to break Russia by breaking oil. How that happens, who knows. But expect a ramp up in policy, tech, and rhetoric on the West’s side with regard to Energy procurement and use in the coming year. Everyone has doubled down. Tripling down is next.”

With reporting by Bloomberg, TASS, Reuters, Zero Hedge