Russia inches back toward dollar assets

Figures released by the Bank of Russia on Monday showed an increase in dollar asset holdings, as the central bank backed away from riskier assets in favour of the safety provided by Treasury bills, despite lower yields.

The data, contained in the central bank's third quarterly report on foreign currency assets, showed that it held 46.4% of its reserves, measured at the end of 2009, in dollar assets. On 1 January 2009, dollar assets accounted for 41.5% of its reserves. At the same time, the total reserve stash dropped by $4 billion over the course of 2009, leaving assets worth $416.9 billion by the end of the year.

The data indicate a reversion of the trend set by the central bank between 2007 and 2009, when the size of its dollar portfolio fell by 5.5 percentage points. The central bank shed around $100 billion in debt issued by Fannie Mae and Freddie Mac, two US government-sponsored enterprises whose fortunes turned during the financial crisis, causing that drop.

The central bank also increased its holdings of sovereign debt by two percentage points, taking it to 89.9% of its total reserves by the end of last year. "To minimise the possible negative impact from the instability on external markets... the Bank of Russia reduced the volume of deposits held at foreign commercial banks and investments into non-sovereign bonds from foreign issuers," the central bank said. "Investment into foreign sovereign debt, on the other hand, significantly increased," it added, noting that it also increased its deposits with foreign central banks, and the Bank for International Settlements in Basel.

Geographically, assets originating in the United States increased by two percentage points at the end of 2009, taking them to 39% of the total. Simultaneously, the central bank divested itself of European assets, with assets originating in the UK sliding three percentage points to 9%, assets originating in Germany slipping two percentage points to 18%, and assets originating in France falling one percentage point, to 16% of the total.

‘Loonie' enters portfolio
The central bank also confirmed that it had started adding Canadian dollar assets to its portfolio, a move that it signalled in January. The report did not put a figure on the total worth of Canadian dollar assets. However, the central bank has signalled in the past that the while it was keen to diversify into Canadian dollars, the size of that portfolio would be smaller than its yen holding, which accounts for 1.2% of its total reserves. Alexei Ulyukayev, the central bank's first deputy chairman, said in January that this was because the Canadian financial market was not very deep, and did not allow Russia to "invest in deposits in significant volumes."