Russia will resume currency purchases for reserves

Russia is likely to resume the purchase of foreign currency for its reserves in May, amid the stabilization of state finances due to the growth of oil revenues. Bloomberg writes about it.

According to the agency, the Ministry of Finance may announce this this week. Initial purchase volumes may be equivalent to approximately two hundred million dollars in yuan per month. As noted by Bloomberg, the Chinese currency is the main asset that Russia can still use to conduct transactions for its Wealth Fund, whose size is estimated at 154 billion dollars.

The resumption of purchases of foreign currency will emphasize Russia’s ability to maintain the flow of petrodollars in the face of sanctions and the oil price ceiling set by Western countries, the agency notes. Despite the tense situation due to military spending and the still extremely high deficit, the Russian budget is stabilizing, the agency states.

“The volume of purchases of foreign currency will initially be small, but extremely symbolic, as they will demonstrate that Russia is increasing its reserves instead of absorbing them,” Bloomberg quotes Russian economist Alexander Isakov. In addition, the accumulation of reserves, according to experts, can have a positive effect on the ruble.

In January, after a break of almost a year, the Bank of Russia decided to resume operations with foreign currency within the framework of the budget rule. We are talking about purchases of currency at relatively high oil and gas revenues and sales at low ones. Now such operations are conducted not with the currencies of “unfriendly countries” – the dollar and euro, but with Chinese yuan. In turn, this allows changing the ratio of the ruble to the dollar and the euro through cross-exchange rates. At the beginning of the year, the Ministry of Finance increased sales of yuan in connection with the decrease in the price of Russian oil after the establishment of a price ceiling of 60 dollars per barrel.

Western countries responded to the Russian military invasion of Ukraine in February 2022 froze almost half of Russia’s gold and currency reserves: 300 billion in dollar equivalent out of 640 billion.