Russian investment fund to abandon dollar amid threat of US sanctions

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ST PETERSBURG, Russia — Russia will abandon the dollar from its sovereign wealth fund, the country’s finance ministry said, as Moscow accelerates measures to wean its economy off the greenback amid the continuing threat of US sanctions.

The finance ministry said the National Wealth Fund, which owns a portion of the country’s oil revenues, will reduce its share of dollar assets to zero by 35 percent. The $ 186 billion strong fund will then hold most of its assets in euros, yuan and gold, the finance ministry said.

The move would further strengthen the role of the Chinese currency in Russia at a time when Moscow and Beijing pursue closer ties.

“It is a sensible decision, it is linked, among other things, to the threats of sanctions that we have received and received from the American leaders”, declared the First Deputy Prime Minister Andrei Belousov on the sidelines of the Saint Petersburg Economic Forum, the flagship investment event in the country.

Washington imposed sweeping sanctions on Russia in April for alleged interference in last year’s U.S. election, SolarWinds hacking into government and corporate computer networks, and other alleged transgressions.

The sanctions also prohibit US banks and institutional investors from buying new Russian government bonds denominated in rubles at auction. The measures ended with banning the purchase of Russian government bonds on the open market, a step analysts said would have had a much more damaging effect on the Russian economy. Such a decision, however, remains in the US arsenal and could be made in the future, observers say.

Moscow has repeatedly denied committing wrongdoing against the United States and accuses Washington of obsessive Russophobia.

The move is as much about the transfer of assets as it is about sending a signal to Washington that the Kremlin will not be swayed by the sanctions, analysts have said. It was less than two weeks before President Biden and Russian President Vladimir Putin met at a summit in Geneva.

“This is a very political move, intended to send a signal to the Biden administration ahead of the Biden-Putin summit,” said Timothy Ash, senior emerging markets strategist at BlueBay Asset Management. “The message is’ we don’t need the United States, we don’t need to transact in dollars, and we are immune to further US sanctions. “”

The immediate implications of the announcement on the market are expected to be limited, analysts say, given that the change will take place as an internal transaction between the government and the Russian central bank. The bank holds about a fifth of its assets in dollars and analysts don’t expect that share to drop quickly.

“Full de-dollarization of the NWF does indeed appear to be a way to reduce political risks,” said Dmitry Dolgin, chief economist for Russia at ING Bank. “In terms of the potential impact, it is unlikely to change the market.”

The central bank said on Thursday it did not expect the decision to seriously affect the market. The Russian ruble was little changed against the dollar, trading at 73.20 against the greenback.

Moscow has long touted its de-dollarization efforts as a way to lessen the impact of Western sanctions. In recent years, Russia’s central bank has increased its gold reserves and sold US Treasuries. Russia has also sought to conclude more trade deals in rubles and other currencies.

However, the dollar remains crucial for Russia. The ruble’s sharp swings in recent years have shaken confidence in the currency, while the Russian economy relies heavily on dollar-denominated commodities such as oil, gas and steel. About half of Russia’s annual oil and gas sales are made in dollars, according to ING Bank.

Meanwhile, Russia will spend up to 400 billion rubles, or $ 5.5 billion, from the National Wealth Fund on infrastructure and development projects aimed at boosting economic growth, Mr. Belousov, according to Interfax.

Write to Georgi Kantchev at [email protected]

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