Russia found itself in a Chinese trap. Before the war in Ukraine, it invested 17% of its gold reserves in yuan to protect itself from possible sanctions. Now, however, it turned out to be impossible to get them, because for their sale you need a special permission from China, which is difficult to obtain, writes Bloomberg(link is external). According to the Central Bank’s report, 105 billion dollars were invested in Chinese yuan.
This is clear from a presentation of the Central Bank of Russia, prepared for a meeting with members of the government on the further fate of reserves and plans to replenish them with the currency of “friendly countries”, held on August 30.
According to the document, Russian authorities are discussing the possibility of buying yuan and other “soft” currencies for $70 billion. “In the new situation, the accumulation of liquid reserves in foreign currency for future crises is extremely difficult and slow. The frozen 300 billion dollars not only does not help Russia, but is also a weakness, a symbol of missed opportunities,” says the presentation in a rare acknowledgment of the true impact of sanctions.
The Central Bank recognizes that because of the sanctions and the ban on operations with dollars and euros, this is not an easy task. The choice must fall on the few “friendly countries”. But the Turkish lira is collapsing – in 10 years it has lost 90% of its value. The UAE dirham is a “political risk” as it has increased visits by US officials to Dubai, who are insisting that the city does not become a hub for circumventing sanctions. There remains the yuan, but there is also a problem – it is easy to put money in, but it is almost impossible to withdraw it. “It is extremely difficult to obtain permission for the sale of Chinese yuan from the Chinese authorities in times of crisis,” the Central Bank wrote.
Officials first broached the idea of buying “friendly” currencies to slow the ruble’s rise in June. At the time, Economy Minister Maxim Reshetnikov criticized the idea, saying it wouldn’t be enough to move the ruble rate much but would force the government to reduce spending sharply.
Citigroup economist Ivan Tchakarov called the plan for buying $70 billion by year-end “quite ambitious,” writing in a note that past purchases have been more modest. “In any case,” he added, “the government seems determined to finally engineer a weaker ruble into year-end.”
Russia’s last unfrozen reserves turned out to be in a Chinese “trap”. About half of the 640 billion dollars available to the Central Bank before the start of the war in Ukraine fell under the first wave of Western sanctions – these are investments in dollars, euros, Japanese yen, British pounds, Australian and Canadian dollars.
The Central Bank began buying yuan in 2018, when the US imposed sanctions on Rusal and began discussing measures against Russian sovereign debt. The largest investment of 44 billion was made in the spring of 2018, when the exchange rate of the Chinese currency was 6.2-6.4 yuan to the dollar. In 2021, the Russian Ministry of Finance transferred the dollar portion of the $17 billion National Welfare Fund into yuan at a rate of 6.4 yuan to the dollar. The Chinese currency is now trading at around 6.9 yuan to the dollar.
The Central Bank’s gold – 2.3 thousand tons, which is the fifth largest reserve in the world, came under separate US sanctions in April. And although gold bars are located in Russia and cannot be arrested, they cannot be sold secretly abroad – Russian gold has characteristic impurities that will immediately show the origin of the metal.
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