Russia is considering buying billions of Chinese yuan and other “friendly” currencies this year to slow the rise of the Russian ruble. In addition, the country wants to rebuild its foreign reserves. Because of the invasion of Ukraine, the West froze about half of its $640 billion in foreign assets.
Moscow wants to use this piggy bank later to finance investments to replace foreign technologies and shift the transport infrastructure to new markets in Asia. The plan was discussed at a special “strategic” meeting of top officials and the central bank on August 30, documents from which Bloomberg news agency has seen.
Russian officials already mentioned the idea of buying “friendly” currency in June. However, Russian economy minister Maxim Reshetnikov was critical at the time. According to him, it would not sufficiently move the ruble exchange rate and force the government to cut spending significantly.
Moscow kept a close eye on spending for years, saving hundreds of billions in dollars, euros, and other foreign currencies as a buffer to protect the economy from oil price shocks. According to the directors, the foreign reserves freeze is a “direct reduction of investment in Russia in favor of investment in other countries.”
According to administrators, building up foreign reserves for future crises is not easy. This is partly because other currencies that Moscow labels as “friendly” are less liquid or less easy to sell than “hostile” currencies such as the dollar and euro.
Moscow also needs permission from China to sell its assets in yuan, which the executives say will be “very difficult” in times of crisis. Other “friendly” currencies like the United Arab Emirates dirham have “high political risks,” while the Turkish lira has fallen sharply in value and threatens to fall further.
In the short term, the yuan will help as revenues from oil and gas exports continue to pour in, and the ruble appreciates in value. Before the war, Russia had already steadily increased its yuan balances in order to be less dependent on the dollar. On January 1, the yuan accounted for 17.1 percent of foreign assets, or just over $100 billion. According to the plan, that should be 180 billion dollars.