Russia sold $5 billion of U.S. currency from its oil fund in May as part of a drive to reduce exposure to the greenback and vulnerability to Western sanctions.
The National Wellbeing Fund converted $4 billion into yuan and $1 billion into euros, the Finance Ministry said in a statement. That leaves $35 billion of dollar holdings still to cut after the ministry said last week that it would eliminate all greenback exposure in the fund. The transfer is taking place within the central bank’s huge reserves so any market impact will be limited.
President Vladimir Putin is on a multi-year drive to reduce Russia’s exposure to the greenback in currency reserves and trade to make the country less vulnerable to sanctions. The plan to ditch the dollar from the oil fund was announced at Putin’s showcase economic forum in St. Petersburg, ahead of his first summit meeting with U.S. leader Joe Biden June 16, seen as a key test of relations which have reached a post-Soviet low in recent months.
“This may have been driven by a desire to achieve a PR effect just before the upcoming Biden-Putin summit,” said Ivan Tchakarov, an economist at Citigroup Inc.in Moscow. “It may, however, also be a transitory step toward a real restructuring of the currency reserves down the road, which, if it happens, must be done on-market.”
Putin also said at the St. Petersburg forum that Russia doesn’t want to stop using the dollar completely, adding that sanctions have forced the country to look for alternative payment methods.
The wealth fund holds savings from Russia’s oil revenues above a cutoff price and is used to help offset shortfalls when the market falls below that level. Together with illiquid assets, its total value is $185.9 billion.