Russia’s foreign exchange reserves had to be held abroad and nothing could have been done to avoid freezing the country’s US dollar and euro assets. The Russian central bank explains this on its website.
Earlier this month, nearly half of Russia’s $300 billion worth of foreign exchange reserves were seized under sanctions imposed by the US, EU and their allies over Moscow’s military operation in Ukraine.
Keeping gold and foreign exchange reserves in the country would be like having no reserves at all, as these assets protect the economy from external crises, the Central Bank of Russia said.
There are two types of financial crises: “traditional” ones like the ones the world experienced in 2008, 2014 and 2020, and geopolitical ones that Moscow is currently facing.
In a traditional crisis, US dollar and euro reserves would help the country pay off its debt and keep trade going, so nothing could be done to prevent an asset freeze. The statement went on to say:
“Cashless currencies are always booked on correspondent accounts with foreign banks and can therefore be frozen.”
During a geopolitical crisis, Russia needs alternative assets like gold and the Chinese yuan that are immune to Western sanctions. The country has accumulated these assets in recent years and now account for almost half of its foreign exchange reserves, the central bank said.
Still, the release of Russia’s yuan reserves is putting pressure on Beijing, Russia’s Treasury Ministry noted earlier this month. The West has pressured China to restrict Russia’s access to these reserves. However, all of the country’s gold is kept domestically.
According to the Russian Ministry of Finance, Russia has reserves totaling about $640 billion. Around 300 billion US dollars were frozen. Moscow could not have foreseen such a development and the freezing is basically a theft, Russian Foreign Minister Sergei Lavrov stressed last week.
After its US dollar and euro reserves were frozen, Moscow took what the central bank described as retaliatory measures. Among other things, the movement of capital was restricted, the sale of securities by foreign investors was prohibited, as was the withdrawal of funds from the Russian financial system. Essentially, the central bank said, it prevents “unfriendly countries” from receiving funds from Russia on a scale comparable to the frozen Russian assets.
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