English translation available:
https://www.rbc.ru/finances/03/06/2021/60b896829a7947ff39ed48fb?from=from_main_1"The dollars will be 0%, the euro - 40%, the yuan - 30%, gold - 20%, pounds and yen - 5%," Siluanov said."
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The Government has decided to withdraw completely from investments in dollar assets by the National Welfare Fund. This was announced to journalists at the St. Petersburg International Economic Forum by Finance Minister Anton Siluanov, RBC correspondent reported.
"We, like the Central Bank, have decided to reduce the investment of the FNB in dollar assets. If today we have about 35% of FNB investments in dollars, 35% in euros, then we have decided to withdraw from dollar assets completely, replacing investments in dollars with an increase in the euro, an increase in gold. The dollars will be 0%, the euro - 40%, the yuan - 30%, gold - 20%, pounds and yen - 5%," Siluanov said.
He said the substitution would happen "quickly enough within a month." How specifically to carry out these operations will be decided by the Bank of Russia, which acts as an agent of the government for the purchase or sale of currency, Siluanov said.
Later, the Ministry of Finance specified that the dollar in the FNB has not been available since May 20, and from June 1, the regulatory structure of liquid funds of the FNB includes gold in anonymized form with a share of 20% (i.e. gold is not in physical form, but on metal accounts in the Central Bank).
"As an alternative to assets in U.S. dollars, which until recently accounted for about 35% of liquid assets of the FNB, the Chinese yuan and the euro are defined as currencies of the countries acting as russia's leading foreign economic partners, as well as gold as an asset capable of protecting the FNB's investments from inflationary risks," the Ministry of Finance explains.
Loko-Invest Investment Director Dmitry Poleva believes that gold will be a functional equivalent of the dollar in the FNB (in particular, because it is quoted in dollars on world exchanges), which is "pretty elegant".
How the FNB is now arranged
The currency structure of the fund, which used to consist only of investments in dollars, euros and pounds sterling, the government began to change since last year - in April, Prime Minister Mikhail Mishustin signed a resolution allowing to invest funds in the FNB in yuan and Chinese government bonds. In the future, it was decided to add to the basket FNB and the Japanese yen - both currencies in the structure of the fund the Ministry of Finance included in February 2021.
The share of the yen was 5%, the yuan - 15%. At the same time, the Ministry of Finance reduced the share of dollar and Euro assets in the FNB from 45 to 35%. The level of investments in the pound sterling left unchanged. The changes were explained by the need to converge with the structure of international reserves of the Bank of Russia, which was adjusted in 2018 to minimize sanctions risks.
The Central Bank did not see a significant impact of the abandonment of dollars in the FNB on the market
economics
Now about $39.8 billion in the FNB accounts for dollars. As of May 1, 2021, the volume of liquid assets of the FNB amounted to the equivalent of 8.66 trillion rubles, or $116.4 billion, the Ministry of Finance reported. This is less than 20% of all international reserves of Russia(more than $600 billion at the end of May), which are generally managed by the Central Bank.
The reserves of the Ministry of Finance also include dollars purchased from the beginning of 2021 as part of operations under the budget rule, but not yet transferred to the FNB. According to Dmitry Kulikov, director of the sovereign ratings and macroeconomic analysis group of ACRA, from January to May it is $4.2 billion.
What explains the decision
The government directly linked the decision to zero the dollar's share in the sovereign fund with U.S. sanctions. "This is also due to the threat of sanctions, which we received and perceived from the American leadership," First Deputy Prime Minister Andrei Belousov said. The Ministry of Finance sees the risk of blocking the Russian government's dollar assets abroad. In 2019, the U.S. administration for the first time extended sanctions on the Russian Central Bank (as well as the Ministry of Finance and the FNB), prohibiting its banks to participate in the initial placement of debt obligations of these institutions, nominated in foreign currency. In April 2021, the U.S. extended such sanctions on the initial purchases of ruble bonds of the Federal Loan (FDB).
Kudrin rejected the idea of complete dedollarization due to the instability of the ruble
economics
Experts interviewed by RBC are confident that the Bank of Russia will sell the bulk of the dollars from the FNB (or all) on the market, as a result of which the share of the US currency in international reserves will decrease. "I think it will be a temporary rebalancing of the FNB and the rest of the reserves, that is, in the rest of the (owned by the Central Bank) the share of the dollar will temporarily increase. And physical sales will probably be somehow scheduled in a pre-known scheme and announced for a much longer period than one month," Dmitry Kulikov told RBC.
Dmitry Poleva believes that "the necessary conversion operations can be carried out on the market or "inside itself" with the subsequent allocation to the market for a longer period of time." The Ministry of Finance indicated that it would inform additionally about the completion of the necessary conversion operations.
"We do not comment on future decisions on gold and currency reserves. Of course, the currency structure of the government's reserves is one of the factors that we take into account ,managing international reserves," Bank of Russia Chairman Elvira Nabiullina told Interfax.
The Central Bank will not follow the Ministry of Finance and will keep the share of dollar assets in its reserves, which are necessary to ensure financial stability in the future, Poleva believes. The share of the dollar in the general reserves will decrease, but is unlikely to reach zero, Kulikov agrees. "All the same, diversification implies the widest possible set of currencies in the portfolio, and the risk that dollar investments will become illiquid for the Central Bank, in my opinion, is less likely," he points out. RBC sent requests to the Ministry of Finance and the Central Bank.
How the economy is dedollarized as a whole
In 2018, President Vladimir Putin supported the plan of dedollarization of the Russian economy, developed by the government in response to the tightening of U.S. sanctions (in particular, the blocking of assets of "Rusal" Oleg Deripaska and "Renova" Viktor Vekselberg). In 2014-2019, the dollar's share in Russia's trade and financial flows fell by an average of 15-20 percentage points, ING bank wrote, including up to 49% in exports of goods and services, 25% in imports, 37% in external debt, etc. yuan and yen.
However, the extended dedollarization (given the currency preferences of the population and private companies) is still in question, as Russian households and corporations must first see a reliable alternative to the dollar, ING stressed in December 2020.
The authorities have chosen the first projects for financing from the FNB
business
U.S. sanctions are a "constant risk" to the Russian economy, Bank of Russia Chairman Elvira Nabiullina told CNBC. To manage the risks associated with foreign exchange ownership, Russia has a policy of dedollarization, she recalled. Many countries, "not only Russia," are moving towards diversification of international reserves, but this process is not going sharply, but gradually, she noted.