Russian central bank wants more Canadian, fewer U.S. dollars

By Alex Nicholson and Paul Abelsky
Bloomberg News
Wednesday, November 25, 2009

"Technical preparations for transactions in Canadian dollars are under way," Sergei Shvetsov, the bank's financial operations head, told lawmakers in Moscow today, in remarks confirmed by a Bank Rossii official. "Then there may be one, two other currencies and that's it."

Russia aims to diversify its reserves, increase gold holdings and promote regional currencies in trade and finance to reduce risks posed by the dollar’s dominance. President Dmitry Medvedev has blamed the global financial crisis on an over-reliance on the U.S. currency. Russia’s interest in buying assets denominated in Canadian dollars is also part of its strategy of reducing exchange-rate volatility, said Vladimir Bragin, an economist at Trust Investment Bank in Moscow.

"They may not be seeking to invest a large amount of money," Bragin said. Russia may be interested in buying bonds backed by the Canadian government or high-quality corporate debt, he said, and "the global economic recovery will boost prices for natural resources, strengthening the Canadian dollar."

Canada's dollar, nicknamed the loonie, appreciated to the highest in a week after the Russian announcement. The currency strengthened as much as 1.2 percent to C$1.0453 per U.S. dollar, the highest since Nov. 18, and was up 1 percent at 8:07 a.m. in Toronto, from C$1.0580 yesterday.

Russia's decision reflects a desire to shield reserves against the dollar’s decline after the U.S. currency lost 13.3 percent against the euro in the past 12 months, making it the worst performer against Europe's single currency of the 16 major currencies tracked by Bloomberg in the period.

The world's biggest energy supplier is increasing foreign reserves in an effort to stem gains in the ruble. The Russian currency gained 8.7 percent against the dollar in the past three months, making it the second-best performer of the 26 emerging market currencies tracked by Bloomberg.

The ruble was little changed against the dollar and trading at 28.7915 at 5:20 p.m. in Moscow. Against the euro, the ruble lost 0.7 percent to trade at 43.4213.

Russia is in talks with India and Brazil to use their currencies in trade, First Deputy Central Bank Chairman Alexei Ulyukayev said last month. Russia already has agreements that allow the use of the ruble and yuan in cross-border trade, he said.

Ulyukayev said on Sept. 29 Russia will avoid diversifying into Australian and Canadian dollars on liquidity concerns.

Russia's reserves, the world’s third largest, are currently made up of 47 percent U.S. dollars, 41 percent euros, 10 percent pounds and 2 percent yen. The country keeps about 35 percent of its international reserves in U.S. Treasury debt.

Russian holdings of U.S. Treasuries gained $200 million in September to $121.8 billion, the most since May and an increase of more than 22 percent since September 2008, according to a Treasury Departmentreport released on Nov. 17.

The central bank increased its gold holdings by 2.6 percent last month. The bullion reserve rose to 19.5 million ounces in October from 19 million ounces the previous month.

Gokhran, the state precious-metals repository, plans to sell 30 metric tons of gold to Bank Rossii by the end of the year, Finance Minister Alexei Kudrin said on Nov. 18, according to the ministry's Web site. The central bank is ready to buy all gold sold, RIA Novosti said two days earlier, citing Ulyukayev.

"The central bank has in the course of several years replenished its supply of gold with the goal of diversifying our gold and foreign-currency reserves," Chairman Sergei Ignatiev told reporters in Moscow on Nov. 18. Gold's share in reserves has increased faster in 2009 than in prior years, he said.