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bne July 2021 Companies & Markets I 15
bne:FX
Russia to reduce its dollar holdings in its NWF rainy day fund to zero
bne IntelIiNews
Russia will entirely remove the dollar from the basket of currencies in its National Welfare Fund (NWF) as the Kremlin’s drive to de-dollarise continues to gather momentum.
“We, like the Central Bank, have made a decision to reduce the NWF's investments in dollar-denominated assets. If
today, in terms of structure, we have about 35% of the NWF's investments in dollars, 35% in euros, then we [have] decided to get out of dollar assets completely, replacing investments in dollars with an increase in euros, an increase in gold. Dollars [will be] 0%, euros 40%, yuan 30%, gold 20%, pounds and yen 5% each,” Finance Minister Anton Siluanov said, speaking at St Petersburg International Economic Forum (SPIEF) on June 3, as cited by RBC.
The rainy day fund was set up to support the budget in years where the government runs a budget deficit. But the fund has also become a strategic weapon in Russia’s sanctions battle with the US, as the size of the fund makes sanctions largely ineffective.
Last year the government ran a budget deficit for the first time in years, but rather than take the money from the NWF, the Ministry of Finance chose to partly fund the deficit by issuing more Russian Ministry of Finance ruble-denominated OFZ
Role of USD in Russia: evolution as a share, 2013, 2019 and 2020, adjusted for the FX moves
Russia National Welfare Fund vs Gross International Reserves $bn
Source: Bank of Russia, Russian Customs, Finance Ministry, ING
Source: CBR, MinFin
treasury bills and increase Russia’s debt slightly in order to preserve the fund.
The NWF held a total of $185.87bn as of May 1, or RUB13.825 trillion, of which 12% is monetary gold and a total of
$119bn (RUB8.66 trillion) are liquid assets – about 20%
of Russia’s total GIR. The difference is money in the fund
that is committed to guarantee various programmes, such
“The rainy day fund was set up to support the budget in years where the government runs
a budget deficit. But the fund has also become a strategic weapon in Russia’s sanctions battle with the US”
as VEB.RF's (formerly Vnesheconombank) large-scale infrastructure projects. Under current rules the Duma can only tap the liquid assets in the fund above 7% of GDP.
The wealth fund currently holds 35% of its liquid assets
in dollars, worth about $41.5bn, with the same amount in euros and the rest spread across yuan, gold, yen and pounds, Bloomberg reports.
The change in the make-up of the fund will take place within the central bank’s huge reserves, which topped $600bn this month for the first time ever.
The change to the make-up of the NWF doesn't mean that billions of dollars will be dumped on the open market. The Ministry of Finance confirmed later the same day that it had sold the money to the Central Bank of Russia (CBR) and so the
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