Russia is considering a plan to buy as much as US$73 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, before shifting to a longer-term strategy of selling its holdings of the Chinese currency to fund investment.
The yuan briefly extended gains against the US dollar after the news, rallying to a session high yesterday. The Turkish lira rose as much as 0.2 percent on the news and was trading 0.1 percent higher at 18.1754 per US dollar as of 11:36am yesterday, while India’s rupee also gained.
The proposal is among a number of measures that would amount to an effective repudiation of more than a decade of economic policy as the Kremlin overhauls its strategy amid sweeping sanctions imposed by the US and its allies over Russia’s invasion of Ukraine.
Photo: AFP
The plan on Tuesday won initial support at a special “strategic” planning meeting of top Russian officials, including Governor of the Central Bank of Russia Elvira Nabiullina, anonymous sources said.
The approach highlights how sanctions have upended Russia’s economic strategy, with the freezing of about half of its US$640 billion in foreign exchange reserves after the February invasion, leaving the Kremlin without access to money it had spent years saving for a rainy day.
“In the new situation, accumulating liquid foreign exchange reserves for future crises is extremely difficult and not expedient,” a presentation on the proposal prepared for the meeting said.
The Kremlin has traditionally contained spending and saved hundreds of billions in US dollars, euros and other foreign currencies as a cushion to insulate the economy from the ups and downs of oil prices.
“The frozen US$300 billion were of no help to Russia; on the contrary, they became a vulnerability and a symbol of missed opportunities,” the presentation said, in a rare official statement on the effect of sanctions.
Even buying the currencies of “friendly” countries is problematic, it noted, saying that selling yuan holdings “requires separate agreement with China, which will be very hard to get in a crisis.”
Other currencies such as the Emirati dirham are subject to “high political risks” because those governments might shift their policies, while the Turkish lira faces major devaluation risks, the document said.
In the short term, with earnings from exports of oil and gas flooding in, driving the current account surplus to a record this year and pushing the ruble higher, the proposal calls for spending 4.4 trillion rubles ($US73.06 billion) to buy the currencies of “friendly” countries, mostly Chines yuan.
Officials first broached the idea of buying such currencies to slow the ruble’s rise in June. At the time, Russian Minister of Economic Development Maxim Reshetnikov criticized the idea, saying it would not be enough to move the ruble rate much, and would force the government to reduce spending sharply.
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