On August 12, Russia’s central bank said it was considering buying the currencies of “friendly countries” such as China, India and Turkey to fill its National Wealth Fund (NWF). Due to Western sanctions, the US dollar and euro in Russia’s foreign exchange reserves have been frozen in large quantities.
NWF is managed by the Russian Ministry of Finance and is part of the international reserves of the Russian Central Bank. As of February this year, the total size of NWF was about 640 billion US dollars, but nearly half of it was frozen due to Western sanctions. Under budget rules, the NWF previously consisted of only two currencies, the US dollar and the euro. Due to the increased volatility of the ruble exchange rate, in early 2022, the NWF fund stopped its daily foreign exchange purchases.
Russia’s central bank said it would stick to the ruble’s free-floating exchange rate policy, but stressed the importance of restoring budgetary rules. The Russian central bank said in a report on monetary policy outlook for 2023-2025 that the Ministry of Finance is currently discussing how to restore fiscal rules and various options to supplement the NWF, such as re-transferring surplus oil revenue into the fund. Buying the currency of more friendly countries is also seen as an option.
Liquidity in yuan-ruble trades has approached the euro-ruble level, Moscow Exchange data showed. In the first half of 2022, the average daily transaction value of RMB increased by more than 12 times. As of July, the renminbi has become the third most demanded foreign currency in Russia after the dollar and the euro. Transactions in currencies of “friendly” countries such as the Indian rupee and the Turkish lira have also risen steadily. NWFs are shifting to holding more currencies of such friendly countries.