Russia is radically shifting its foreign currency reserves from the dollar
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Donald Trump likes to be a good friend of Russia. But current movements in the currency markets demonstrate: the Kremlin is trying everything to free itself economically from the United States – with global consequences.
ORUS President Donald Trump and his Russian counterpart Vladimir Putin are having a good relationship. Almost every day Trump rages against the special investigator Robert Mueller and calls the investigation of Russia a witch hunt. Vladimir Putin has not manipulated the American presidential elections at all.
But who wants to know how the relations between America and Russia really are ordered, studies the statistics of the Russian central bank better. And these signs that a new cold war has broken out for some time between the two great powers. The Kremlin is not at all a partner of America, but tries in every way to free itself from the former enemy.
Russia has radically redistributed its billions of currency reserves. Only in the second quarter of 2018, $ 100 billion of assets in US dollars were liquidated and money invested in other currencies. This is demonstrated by data released by the Russian central bank. Afterwards, $ 44 billion was invested in euros and yuan, the Russians in the Japanese yen put the equivalent of $ 21 billion.
Being a major exporter of oil and gas, the Kremlin is sitting on a huge treasure. The currency reserves of currently $ 467 billion are among the highest in the world. At the end of the second quarter, 15% was invested in yuan. Three months earlier, the share was only 5%, in the second quarter of 2017 even only 0.1%. Therefore, Russia has bought a quarter of the world yuan reserves. This shows how radical the swing is.
According to the calculations of the US investment bank Morgan Stanley, last year Russia had been the most important buyer of Chinese bonds. The entire 90% of Beijing's debt should have acquired the Kremlin. The currency reserves of the states are not stored in coins and banknotes in large vaults, but are mainly in government bonds of the respective country. Dollar reserves in US Treasuries, dollar-denominated reserves and yuan reserves from China.
Russia rejects its US government bonds
One of the profiteers was the euro. Its share of Russian reserves increased from 25% in mid-2017 to 32% a year later. In the same period, the share of investments in dollars has halved to 22%. "Russia makes a strategic move from the dollar to other currencies," said Benn Steil, economist of the Council for Foreign Relations of the Council of Problems, Bloomberg. The purchase of Chinese cards is a further proof that the Russians are forging a new alliance with China as a counterweight to America.
The data released by the Russian central bank six months later are in line with another statistics that caused a sensation last year. According to data from the US Treasury, Moscow has rejected almost all of its US treasuries. Last spring, the Kremlin lost 81% of its Treasuries. The Russian stock of US bonds is now just a paltry $ 14.6 billion. Only a few years ago, the Russians had held 176 billion of US assets.
One reason is the sanctions imposed by the Americans against Russia. In April, Washington issued unexpected sanctions on Rusal, eliminating the Russian aluminum company. The commodity giant was not so fatal that he could no longer sell his aluminum everywhere, but that he could no longer afford interest on his dollar bonds. Vladimir Putin has impressively shown how vulnerable it is not only its national economy and its societies, but also its currency reserves and how much it depends on the grace of the Americans.
Other states are running away from the dollar
"America uses the dollar as a weapon," says Charles Gave, a strategist at the independent analysis firm GK Research. "International dollar-dollar transactions can be banned from Washington with a pen stroke." The sale of assets in US dollars is proof that Moscow wants to become more independent of America. "We are not rejecting the dollar, the dollar is rejecting us," Russian President Putin said last November. "The unreliability of the dollar system causes other countries to seek alternative foreign exchange reserves, we are not the only ones, believe me."
Indeed, many states want to circumvent the dictates of the dollar. Washington's weak unilateral politics could shake the post-war monetary order architecture. A first trend shows new data on the composition of international currency reserves (COFER). The International Monetary Fund (IMF) publishes data once a quarter. In the third quarter of 2018, the dollar share of official world official reserves fell to 61.9%. That was the lowest value in five years. By contrast, the euro has slightly increased. A good fifth of all reserves is concentrated in the single European currency.
Gold is also one of Russia's favorite investment vehicles. The lack of precious metals has quadrupled in the last ten years. Gold is a kind of currency without a state and therefore armed with political sanctions.