The Black Box

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NEWS:Russia to join anti-dollar game
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October 22, 2003 Posted: 10:57 Moscow time (06:57 GMT)

MOSCOW - Russia plans to cut the share of US dollars in its reserves and increase the share of euros, Senior Deputy Finance Minister Alexey Ulyukayev said on Tuesday. According to him, the necessity of this measure is connected with the important role of the European market for the Russian economy and with the weakening of the American currency on the international market. The percentage of dollars in the currency reserves will be reduced by 3-5 percent, and the share of euro reserves will be increased by the same amount, Mr. Ulyukayev told the Bloomberg agency.

Four years ago, dollar reserves made up 90-95 percent of Russia’s foreign currency reserves. At that time, the Central Bank’s leadership did not plan to increase it significantly. Two years ago, the former Chairman of the Central Bank Viktor Gerashchenko said that only 5 percent of the country’s reserves were in euros. According to him, there was no need to increase this share, as the bulk of foreign trade payments was made in dollars.

But the Central Bank’s new team has broken this mold. The bank’s Chairman Sergey Ignatyev has recently reported that 70 percent of the reserves were in dollars and 25 percent in euros. The Russian gold and foreign currency reserves were $63.5bn as of October 10, including $58.3bn in foreign currency reserves.

Generally speaking, the main purpose of foreign reserves kept in the central bank of any country is to serve the needs of foreign trade and ensure the stability of the national currency. According to the State Customs Committee, EU countries accounted for 35.9 percent of Russia’s foreign trade in January-August 2003, about 1.5 percent less than last year, mainly due to the reduction of exports.

However, it should be noted that most of Russia’s exports to the European Union are raw materials, with prices fixed in dollars. Given this, the share of euros should be at least twice as low. The situation on the Russian foreign exchange market confirms the stability of this indicator, even if indirectly. The number of ruble/euro deals is many times lower than the number of ruble/dollar deals. And the ratio does not change. Thus, a conclusion can be made that 90 percent of export proceeds subject to obligatory sales are in dollars, and the demand for euros from importers does not exceed EUR 150m to EUR 200m a month.

Another reason for increasing the share of euros in the Russian gold and foreign currency reserves might be the desire to harmonize the structure of the reserves with the structure of Russia’s external debt. But the required balance has almost been achieved. According to the Finance Ministry, the euro-denominated part of the Russian foreign debt makes up about 28 percent. About 70 percent of the debt is denominated in dollars. Due to Russia’s significant debt payments to the Paris Club of creditors, the share of euro-denominated obligations is likely to decrease slightly by year-end.

We can only assume that the Finance Ministry fears that the dollar will continue falling on the international exchange market. Since the start of the year, the American currency has weakened against the euro by about 10 percent, and, according to some forecasts, this tendency will continue. However, it is not ruled out that the Finance Ministry’s statements are part of its anti-dollar game. The positions of the dollar and the euro are determined by the demand for this or that currency in international payments and, accordingly, the demand from national central banks.

Meanwhile, the Central Bank of Russia may have its own opinion on the ratio of foreign currencies in the reserves. In September, Senior Deputy Chairman of the Central Bank Oleg Vyugin said that the Central Bank was not going to introduce serious changes to the structure of the country’s gold and foreign currency reserves. “Our currency policy is not based on the exchange rate of the main currencies, and we don’t speculate on the exchange rate. That is why any change in the euro/dollar exchange rate does not prompt us to change the currency structure of the reserves,” he stressed.

http://www.russiajournal.com/news/cnews-article.shtml?nd=40945