The Russian mega-regulator increased its international reserves by $40 bln – almost to $460 bln – in the period from mid-2017 to mid-2018. Over that period, the Central Bank halved its investments in US dollars, to 22% from 46% of its overall reserves, while its Chinese yuan-denominated assets immediately rose to 15% from a negligible share of 0.1%. Investment in the European currency also rose from 25% to 32%, the Bank of Russia said in its Foreign Exchange and Gold Asset Management Report.
The reason for Russia’s growing yuan investment is its high yield of 3.2% per annum. However, this figure was offset by another weakening of the Chinese currency the country undertook as part of the trade war with the United States to support its producers. Russia’s dollar portfolio showed a small yield of 0.35%, while the euro showed negative income.
Experts note this could be another step towards weaning the Russian economy off the dollar, a policy consistently planned by the Russian authorities. One of its components is to stimulate payments between partner countries in their national currencies. However, this is unlikely to lead to the abandonment of the dollar in foreign exchange reserves.
“The talk about abandoning the dollar and switching to the yuan has been going on at least since the middle of the 2000s, but in reality, the situation has not changed, and the financial authorities keep loyalty to the dollar as the most sustainable instrument,” economist Dmitry Afanasyev said. “The yuan is prone to devaluation, which is the most important tool of trade war for China.”