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The Bank of Russia has been cutting the proportion of foreign currencies in its reserves while at the same time expanding the share of gold. Since January 2009, the share has grown 1.3 percent to $20.4bn, which is partly linked to the fact that the Bank of Russia was forced to sell foreign currencies on a large scale in a bid to back the falling ruble at the start of the year. However, the “gold” tack the bank has adopted is to be long-term in nature.

Since the start of the year, the percentage of currencies in the Bank of Russia's gold and foreign exchange reserves dropped 8 percent to $378.2bn, while the share of gold expanded 4.7 percent to $20.4bn. Over the recent years, the share of dollars has also been decreasing in the Bank’s foreign exchange assets even as the shares of other currencies – euros and pounds sterling – have gone up. Since 2006, the share of dollars has slid from 51.5 percent to 48 percent.

The Bank of Russia's investment policy is fully in line with the global trend. The volatility on stock markets drove many central banks to revise their reserves structure this year. Since 2001, the share of dollar assets in central banks’ reserves worldwide has shrunk 8.5 percent, while those of euros and pounds sterling have climbed 7.6 and 2 percent, respectively. This comes as no surprise, as over that period the dollar slumped 20 percent against the basket of leading global currencies.

Chief economist of Deutsche Bank in Russia Yaroslav Lisovolik expects the Bank of Russia to continue decreasing the dollar share in its foreign exchange assets in the long term. “The reduction will be insignificant, however, just about 1 percent,” Lisovolik said, adding “It largely relies on macroeconomic factors, such as changes in the currency structure of Russia's foreign debt and Russia’s foreign trade dynamics.”

“With the future of foreign currencies – the dollar and the euro – being unclear, the trend is to shift to basic assets,” Trust National Bank analyst Vladimir Bragin explained. In his opinion, the Bank of Russia will be seeking to substitute foreign currencies for gold in its reserves. “It would be natural for the Bank of Russia to buy up the gold that the State Fund of Precious Metals and Gemstones proposed to sell, since it would be a good way of diversifying the reserves without venturing out to gold markets,” Renaissance Capital analyst Nikolai Podguzov added.

In late October, Finance Ministry insiders said that the State Fund of Precious Metals and Gemstones planned to boost the acquisition of gold from mining companies up to 30 tonnes next year. For reference, this year the figure will be at a modest 5 tonnes, according to the Finance Ministry.

Analytical department of RIA RosBusinessConsulting