In a bid to manoeuvre around growing geopolitical issues (and reducing dependency on the US dollar), the Kremlin has been increasing its gold and forex reserves.
Russia’s gold and forex reserves are the world’s fourth-largest and they increased by USD 20 billion last year. Today, the nation holds its highest ever levels of gold reserves, which stood at about USD 640 billion as of January 2022. So, how exactly is Russia building up its gold and forex reserves on a large scale?
Russia’s Current Situation Explained
Presently, Russia is facing international sanctions, particularly in the Western market, in light of the geopolitical tension with Ukraine. In response, the nation’s financial institutions imported around USD 5 billion worth of foreign currencies in late 2021 in a defensive step to protect the country from sanctions. According to Russia’s Central Bank data, an estimated USD 70 billion and USD 100 billion are held up in US dollars and tied up in liabilities and foreign assets respectively.
It is a widely known fact that Russians typically like to hold the US Dollar as a hedge against the value drop of the ruble or a rise in inflation in Russia. The increase in foreign exchange imports is generally related to a likely increase in demand for cash currency. Russian banking institutions often import foreign currencies in cash to meet the rising demand from customers in either USD or EUR. This is because foreign currencies are usually required for travel or as an emergency fund in unforeseen scenarios.
Furthermore, The United States is taking into consideration new sanctions against Russia to bar some of its top-tier banking institutions from USD-based transactions to reduce their ability to service dollar-denominated business.
Russia’s Record High Gold and Foreign Currency Reserves
Reports show that Russia’s gold assets and foreign currency reserves have increased up to USD 640 billion as of this current month (at the time of writing). The International Monetary Fund gave Russia around USD 17.5 billion in its Special Drawing Rights (SDR) last year in late 2021.
The gold and forex reserves in Russia have reportedly surged by USD 800 million. The 0.1% rise was likely due to encouraging market assessment. If not for negative market evaluation at first, the rise in the percentage of reserves would have been slightly higher.
Russia's international reserves consist of vast liquid foreign assets which are held by the Bank of Russia, where gold accounts for 23% and 22% of it is overall reserves.
Final Thoughts
Russia continues to surpass barriers when it comes to strengthening its gold and foreign exchange reserves. Though there are signs of more impending sanctions that can lead to temporary market volatility, Russia’s ongoing hoarding shows signs of wavering troubling times ahead.
