Russia’s Central Bank adds yuan to reserve currency basket
According to the sources, the share of Russian reserves in yuan in the near future will remain small and symbolic
Russia’s Central Bank has added the Chinese yuan to the foreign exchange reserve basket, two sources close to the bank told TASS. They added the bank does not plan purchasing operations of yuan-nominated assets in the near future.
According to the bank’s third quarterly report for 2015, on December 31, 2014, the share of US dollar in the Russian reserves was 44%, euro accounted for 42% and British pound — for 9.5%. The reserves also include smaller amounts the Canadian and Australian dollars, the Swiss frank and the Japanese yen.
According to one of the sources, the decision to add the yuan was made in mid-November.
Both sources said that the Central Bank has not carried out any operations on physical buying of the yuan yet.
“The Central Bank has added the yuan to the basket of reserve currencies,” one of the sources said.
According to both sources, the share of Russian reserves in yuan in the near future will remain small and symbolic.
The press service of the Central Bank said that the composition of reserves is officially unveiled with a six month delay.
The Moscow Exchange, where the Central Bank could theoretically buy currencies for reserves, began to trade in yuans in late 2010.
Since then, the volume of trading in this currency has significantly increased.
In August, trading volume grew 4 times year-on-year to an absolute maximum and amounted to 18 billion yuan (191 billion rubles – $2.8 bln).
Purchases by the regulator will increase the demand for the Chinese currency.
The Russian authorities announced a turn to the East, after the country found itself under sanctions of Western countries following the events in Ukraine. The sanctions in particular deprived Russia of the access to Western capital markets and technologies for developing hard-to-reach oil and gas deposits.
Russia and China plan to sign an agreement that will allow the two countries to build the necessary infrastructure to buy assets denominated in national currencies.
Earlier than IMF
The decision of Russia’s Central Bank anticipates a possible decision of the International Monetary Fund (IMF), which is expected on November 30, to include the yuan in the basket SDR (Special Drawing Rights — international means of payment issued by the IMF).
The composition of the SDR basket, consisting mainly of the US dollar, euro, pound sterling and yen, determines the currency composition of the loans to countries which need the assistance of the fund.
Analysts with the IMF considered that the share of the yuan in the SDR basket could be around 14-16%.
Russia ranks seventh in terms of volume of foreign exchange reserves after China, Japan, Saudi Arabia, Switzerland, Taiwan and Korea.
The Central Bank invests the reserves in bonds of the countries that issue reserve currencies.
As of November 26, the Russian gold and foreign exchange reserves stood at 364.5 billion dollars. The Central Bank plans to increase reserves to $500 billion within 5-7 years.
According to one of the sources, several members of the bank’s board were against the inclusion of the yuan in the basket. First Deputy Chairman of the Central Bank Ksenia Yudaeva said that the yuan cannot be used in the formation of international reserves due to its non-reserve status.
According to the common international practice, the currency used for the investment of reserves should be free floating. For the moment the Yuan is not a freely floating currency, however, according to the People’s Bank of China, it is moving towards “free circulation”.
In conditions of a free floating exchange rate regulators do not enter the market with interventions – in other words they don’t sell or buy currencies, aimed at maintaining a certain exchange rate.
Russia’s Central Bank, which moved to a free floating exchange rate in late 2014, buys and sells currency on the market in order to smooth currency rate fluctuations.