Russia is considering a plan to buy $70 billion in foreign currency with the aim of devaluing the ruble. Buying yuan and other debt from “friendly” countries is on the table. In the long run, Moscow wants to sell everything in the Chinese currency (yuan).
The proposal, reported by Bloomberg, is one of a package of measures aimed at strengthening the Russian economy while the country deals with sanctions imposed by the European Union and the United States following its invasion of Ukraine. Blocks access to around US$640 billion in foreign exchange.
For years, the Kremlin’s economic policy has been to control budget spending, saving billions of dollars and euros and other foreign exchange. This “cushion” can help prop up the economy in times of uncertainty, such as fluctuations in oil prices. According to sources familiar with the matter, the plan was initially exposed at a government meeting that included the head of the Russian Central Bank, Elvira Nabiulina.
“In this new scenario, accumulation of foreign currency reserves for future crises is very difficult and not appropriate to the circumstances,” explains the proposal submission document seen by BBG. “The $300 billion freeze did not help Russia; instead, it became a symbol of vulnerability and missed opportunity,” it said in a rare confession of the sanctions’ impact on the Russian economy.
The document also states that saving this money “directly reduces investment in Russia and harms investment in other countries.”
Even buying foreign currency from “friendly” countries is not an easy task: selling yuan “requires an agreement with China, which can be very complicated in times of crisis”; The UAE dirham is exposed to “higher political risks”, such as a change of course by the country’s government, and the Turkish lira is at risk of devaluation – this analysis can be read in a presentation given to Russian officials.
Still, in the short term, oil and gas revenues have flowed to Moscow, with the country already in budget surplus this year and the ruble depreciating, with the Russian government looking to spend 4.4 billion rubles ($70 billion). “Friendly” currencies, mainly the yuan.