Russia Considering Buying Allied Currencies To Fill Its NWF

Russia has floated plans of buying the currencies of ally countries, such as China, India, and Turkey, to hold on to its National Wealth Fund (NWF), as an alternative to the US dollar and euros. The move comes after the country was sanctioned by the West for its invasion of Ukraine, according to the Bank of Russia on Friday.

The Central Bank of Russia said it remained committed to the policy of free-floating the ruble exchange rate but added that reinstating a budget rule to move excess oil revenues into Russia’s rainy day fund was a priority.

In its report on monetary policy for 2023-2025, the CBR noted that discussions on the options available to drive a return to fiscal rule and rejuvenate the NWF was being had. The bank detailed:

“The Russian Ministry of Finance is working on the possibility of implementing an operational mechanism of the budget rule mechanism for the replenishment/spending of the NWF in currencies of friendly countries (yuan, rupees, Turkish lira, and others).”

Meanwhile, experts registered their worries about the liquidity shortages that could emerge with this move and the possible risks associated with them. For example, inflation in Turkey jumped by a 24-year high of 80% in June.

Russia-China Transactions Have Reached Euro-Ruble Levels

Alexei Zabotkin, the central bank’s first deputy governor who presented the monetary policy report on Friday, explained that the parameters of the new budget were still under consideration and are not etched into stone yet. Zabotkin also explained that liquidity from trade activities involving the Chinese yuan and Russian ruble has approached levels of the euro-ruble currency pair on the Moscow Exchange.

Reports show that the average daily trade number for the yuan jumped by more than 12 folds in the first half of 2022, according to the MOEX.