Russian central bank downplays the role of the dollar and the euro in the country and in the world

The national flag flies over the headquarters of the Russian Central Bank in Moscow, Russia, May 27, 2022. REUTERS/Maxim Shemetov

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May 31 (Reuters) – Russia’s central bank said on Tuesday the role of the dollar and euro as global currencies would decline as central banks rethink their strategies after the West froze Russian reserves, suggesting that may consider imposing negative rates for dollar and euro deposits.

Unprecedented Western sanctions froze about half of Russia’s gold and currency reserves, which stood at nearly $640 billion before Moscow began its military campaign in Ukraine on February 24.

The Bank of Russia said this precedent as well as discussions of a possible seizure of the frozen part of the reserves would cause other central banks, mainly in Asia and the Middle East, to rethink their savings strategies.

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“One would expect an increase in demand for gold and a decrease in the role of the US dollar and euro as reserve assets,” the bank said in a financial stability report.

At the end of 2021, the Russian central bank held $131.5 billion of its reserves in gold, while the rest of the $612.9 billion in reserves was held in foreign currency assets. As of May 20, Russia’s reserves have fallen to $583.4 billion.

The central bank said the share of foreign currency liabilities of Russian banks has recently declined as customers have stepped up withdrawals of funds from their foreign currency accounts, while the share of banks’ foreign currency assets has increased.

“One of the results of the restrictions imposed by the sanctions imposed on the foreign exchange market has been the tendency to increase the use of alternative currencies to the US dollar and the euro,” the central bank said, referring to the Chinese yuan. especially.

To speed up the process, Russia could consider imposing negative interest rates on deposits held in dollars and euros, the central bank said.

Central Bank Deputy Governor Ksenia Yudaeva later clarified that these discussions only concerned foreign currency deposits of corporate clients with banks, not those of retail clients.

Yudaeva said it was too early to lift the $10,000 limit on Russian citizens’ withdrawals from their foreign currency accounts, in place since the early days of the Ukraine campaign, but did not rule out revising it in september.

“We will wait for September and then we will see,” Yudaeva told reporters.

At the end of 2021, the share of foreign currency in household assets, including stocks and deposits, was around 22%, and the central bank at the time said it had no intention of reduce it.

The central bank also said in the report that Russian private investors have become the main driver of the stock market amid trade restrictions for non-residents.

($1 = 61.1000 rubles)

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Reuters reporting Editing by Chizu Nomiyama and Tomasz Janowski

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