Russia shift reserves from dollar


Richard Moore

Original source URL:

Russia shift fx reserves from dollar
By Steve Johnson
Thu Jun 8, 12:30 PM ET

Russia became the latest country to shift a chunk of its central bank reserves 
out of the dollar, further eroding the standing of the greenback as the world's 
de facto reserve currency.

Sergei Ignatyev, chairman of the central bank, said 50 per cent of its forex 
reserves were now held in dollars, with 40 per cent in euros and the remainder 
in sterling. Previously it was believed that just 25-30 per cent of the reserves
were in euros, with virtually all the remainder in dollars.

Moscow's reserves have grown rapidly in tandem with high oil and gas prices. The
central bank now boasts the world's fourth-largest reserves, after China, Japan 
and South Korea, with its gold and forex holdings rising by 36 per cent so far 
this year to $247bn.

The move ties in with increasing signs that cash-laden Middle Eastern oil 
exporters are also looking to diversify reserves out of the dollar, following 
hints from the United Arab Emirates, Kuwait and Qatar.

"This is a bearish development for the dollar," said Chris Turner, head of 
currency research at ING Financial Markets. "It reminds us that global surpluses
are accumulating to the oil exporters, and Russia is telling us that an 
increasingly lower proportion of these reserves will be held in dollars. This 
suggests there is a trend shift away from the dollar."

Clyde Wardle, senior emerging market currency strategist at HSBC, added: "We 
have heard talk that Middle Eastern countries are doing a similar thing and even
some Asian countries have indicated their desire to do so."

In a sense, Moscow's move was unsurprising. Russia's $71.5bn budget 
stabilisation fund is due to be converted from roubles to a mixture of 45 per 
cent dollars, 45 per cent euros and 10 per cent sterling, and the day-to-day 
movements of the rouble are monitored against a basket of 0.6 dollars and 0.4 

Furthermore, some 39 per cent of Russia's goods imports came from the eurozone 
in 2005, against just 4 per cent from the US.

The announcement failed to stop the dollar strengthening 1 per cent to $1.2661 
against the euro on Thursday as interest rate differentials and geopolitical 
factors continued to support the greenback.

However the statement does play into a perception in the forex market that 
central banks, which together hold $4,250bn of reserves, are increasingly 
channelling fresh reserves away from the dollar to reduce potential losses if 
the dollar was to fall sharply as part of the process of reducing global 
economic imbalances.

Copyright © 2006 The Financial Times Limited.
Copyright © 2006 Yahoo! Inc. All rights reserved.


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