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Russia's Wealth Fund to Ditch Dollar Amid U.S. Sanctions Threat

06/03/2021 | 10:38am EDT

By Georgi Kantchev

ST PETERSBURG, Russia -- Russia is to ditch the dollar from its sovereign-wealth fund, the country's finance ministry said, as Moscow accelerates steps toward weaning its economy off the greenback amid the continuing threat of U.S. sanctions.

The finance ministry said the National Wealth Fund, which holds part of the country's oil revenues, will cut the share of dollar assets it holds to zero from 35%. The $186-billion strong fund will then hold most of its assets in euros, yuan and gold, the finance ministry said.

The move would further strengthen the role of the Chinese currency in Russia at a time Moscow and Beijing are pursing closer ties.

"This is a sensible decision, it is connected, among other things, with the threats of sanctions that we received and received from the American leadership," First Deputy Prime Minister Andrei Belousov said on the sidelines of the St. Petersburg Economic Forum, the country's flagship investment event.

Washington imposed sweeping sanctions against Russia in April over alleged interference in last year's U.S. election, the SolarWinds hack of government and corporate computer networks, and other alleged transgressions.

The sanctions also bar U.S. banks and institutional investors from buying new Russian government ruble-denominated bonds at auction. The measures stopped short of prohibiting the purchase of Russian government bonds in the open market, a step analysts say would have had a much more damaging effect on the Russian economy. Such a move, though, remains in the U.S. arsenal and could be taken in the future, observers say.

Moscow has repeatedly denied conducting any misdeeds against the U.S. and accuses Washington of obsessive Russophobia.

The decision is as much about shifting assets as about sending a signal to Washington that the Kremlin won't be swayed by sanctions, analysts said. It comes less than two weeks before President Biden and Russian President Vladimir Putin are to meet at a summit in Geneva.

"It is a very political move -- meant to send a signal to the Biden administration before the Biden-Putin summit," said Timothy Ash, senior emerging markets strategist at BlueBay Asset Management. "The messaging is 'we don't need the U.S., we don't need to transact in dollars, and we are invulnerable to more U.S. sanctions.'"

The immediate market implications of the announcement are expected to be limited, analysts said, since the shift will take place as an internal transaction between the government and the Russian Central Bank. The bank holds around a fifth of its assets in dollars and analysts don't expect that share to fall quickly.

"Full de-dollarization of NWF indeed looks like a way to lower political risks," said Dmitry Dolgin, chief economist for Russia at ING Bank. "As for the potential impact, it is unlikely to be market-moving."

The Central Bank said on Thursday that it doesn't expect the decision to seriously affect the market. The Russian ruble was little changed against the dollar, trading at 73.20 against the greenback.

Moscow has long touted its de-dollarization efforts as a way to blunt the impact of Western sanctions. In recent years, the Russia central bank has ramped up its gold reserves and sold U.S. Treasury bonds. Russia has also sought to execute more trade deals in rubles and other currencies.

However, the dollar remains crucial for Russia. Wild swings in the ruble in recent years have undermined confidence in the currency, while the Russian economy is heavily reliant on dollar-priced commodities such as oil, gas and steel. Around half of Russian annual oil and gas sales are conducted in dollars, according to ING Bank.

Separately, Russia will spend as much as 400 billion rubles, or $5.5 billion, from the National Wealth Fund, on infrastructure and development projects in a bid to boost economic growth, Mr. Belousov said on Wednesday, according to Interfax.

Write to Georgi Kantchev at georgi.kantchev@wsj.com

(END) Dow Jones Newswires

06-03-21 1037ET

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BRITISH POUND / US DOLLAR (GBP/USD) 0.20% 1.3916 Delayed Quote.1.62%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.26% 0.79749 Delayed Quote.2.14%
DJ INDUSTRIAL 0.80% 35117.19 Delayed Quote.14.14%
EURO / RUSSIAN ROUBLE (EUR/RUB) -0.13% 86.4726 Delayed Quote.-3.79%
EURO / US DOLLAR (EUR/USD) -0.08% 1.18634 Delayed Quote.-2.85%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.14% 0.013468 Delayed Quote.-1.75%
ING GROEP N.V. 1.11% 10.954 Real-time Quote.41.79%
LONDON BRENT OIL -0.81% 72.47 Delayed Quote.45.28%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.40% 0.70131 Delayed Quote.-2.87%
NWF GROUP PLC 1.38% 220 Delayed Quote.11.28%
SOLARWINDS CORPORATION 2.58% 22.64 Delayed Quote.-26.19%
UK PENCE STERLING **** / RUSSIAN ROUBLE (GBP/RUB) 0.16% 1.014751 Delayed Quote.0.22%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.03% 6.4643 Delayed Quote.-0.51%
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