Russia has surpassed Saudi Arabia in foreign exchange reserves: what does sixth place in the world mean?

The “pot” is replenished mainly from yuan

In terms of foreign exchange reserves, Russia has risen to sixth place in the world, which was previously occupied by Saudi Arabia. According to the World Gold Council, the figure was $442 billion, which is generally not bad. However, two circumstances must be kept in mind: firstly, most of these funds are frozen by the West, and it is impossible to use them as an actual liability; secondly, today the foreign exchange reserves of the Russian Federation are replenished mainly at the expense of Chinese yuan, and not dollars and euros, as is the case it was until 2022.

It is curious that at the end of last year, Russia’s foreign exchange reserves decreased by $3 billion compared to 2022. It was possible to overtake Saudi Arabia for the simple reason that the authorities in Riyadh radically changed their approaches to the allocation of reserves. Having refused to keep most of them in the Central Bank, the Saudis have placed an emphasis on national development funds. In addition, the kingdom has established upper and lower limits on the volume of reserves, which are determined depending on the level of oil production.

Above Russia in the World Gold Council ranking are China ($3.3 trillion), Japan ($1.2 trillion), Switzerland ($755 billion), India ($574 billion) and Taiwan ($564 billion). As for the gold and foreign exchange reserves of the Russian Federation (not to be confused with purely foreign exchange reserves!), they increased over the past year to $598.6 billion, mainly due to the rise in price of the yellow metal. The volume of gold in the gold reserves remained unchanged, amounting to 75 million pure troy ounces worth $150 billion.

What does such a high place in the ranking mean, what does it mean for the economy and the population? The answer is obvious: for any state it is a safety cushion in case of various force majeure events. Thus, during the pandemic, the Ministry of Finance and the Central Bank compensated for the losses of the state budget precisely at the expense of existing foreign exchange reserves. And today the Bank of Russia supports the ruble exchange rate by selling foreign currency on the market.

“$442 billion is a very good figure,” says BitRiver communications director and economist Andrei Loboda. – The more reserves a country has in gold and convertible currencies, the greater the opportunity to repay external obligations in a timely manner and the less likely the state will default to creditors or devalue the national currency. As for the growing share of the yuan, this situation is forced, since the yuan is the only global reserve currency that is not toxic for the Russian Federation.”

Over the past 30 years, Russia’s export volumes have consistently exceeded import volumes. Accordingly, it is simply doomed to have significant foreign exchange reserves, like many other “net exporters,” primarily Germany, Japan, China, Norway, and Saudi Arabia, says Alexey Vedev, director of the Center for Structural Research at RANEPA. However, according to him, the current situation cannot be called normal and stable: since the spring of 2022, Russia, due to sanctions and the West’s freezing of $300 billion, has been forced to replenish reserves almost exclusively at the expense of yuan. The total amount of $442 billion does little for the economy, since most of these funds cannot be used. As well as gold as part of gold and foreign exchange reserves, which (despite its safety) has limited liquidity.

“According to international standards, current foreign exchange reserves should cover the volume of three months of imports,” notes Nikita Maslennikov, leading expert at the Center for Political Technologies. – Russia’s coverage level exceeds eight months, which indicates the stability of the financial system, balance of payments and trade balance. However, we must not forget: the structure of reserves also contains frozen assets, which, however, remain the legal property of our country.”

Well, there is nothing supernatural in the situation with a high share of the yuan in Russian reserves, Maslennikov believes. On the recommendation of the IMF, the yuan is one of the world’s reserve currencies, which means that any regulator has the right to have it as part of its gold and currency reserves. Today, revenues in dollars and euros from trade are limited; Russia is forced to place emphasis on transactions in national currencies, which account for 65-70% of export revenue. And since Moscow’s main foreign economic partner is Beijing, the actual expansion of the yuan in gold and foreign currency reserves ensures stability and predictability in trade with the Chinese side.

“Keeping part of the reserves in the currency of a partner country is a sensible and at the same time a forced measure: when dividing world currencies into “friendly” and “unfriendly”, there is nothing else left,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – The Russian Central Bank will continue to accumulate yuan as a guarantee of mutual trade and economic location. This is facilitated by growing rumors about a positive solution to the issue of the Power of Siberia-2 gas pipeline, as well as the speedy launch of the Power of Siberia to full capacity.”