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Russia Adds Loonie to Reserves, Eyes Other Currencies

Russia Adds Canadian Dollar to Reserves
Russia has started adding the Canadian dollar to its international reserves. Photographer: Norm Betts/Bloomberg

Russia has started adding the Canadian dollar to its international reserves and may increase those holdings in coming months, said Alexei Ulyukayev, first deputy chairman of Russia’s central bank.

“We have recently begun investing in assets denominated in the Canadian dollar,” Ulyukayev, 54, said in an interview yesterday in Moscow. “So far, the amounts are very small, but there’s perhaps potential for increasing our holdings.”

Russia aims to diversify its reserves, the world’s third biggest, and promote the use of regional currencies in international trade and finance to reduce risks posed by the dominance of the U.S. dollar. The central bank also plans to increase gold holdings and may consider including other currencies, including the Australian dollar.

The reserves comprise 47 percent U.S. dollars, 41 percent euros, 10 percent British pounds, 2 percent Japanese yen and a small amount in Swiss francs. The central bank has reduced the U.S. currency’s weight from 50 percent of the total in 2006, when euros accounted for 40 percent, with yen and pounds accounting for the rest.

Reserves fell to $489.3 billion as of Nov. 19, the central bank said on its website today. The stockpile has gained more than 30 percent from a low of $376.1 billion in March 2009. Bank Rossii drained the reserves by more than a third to manage its devaluation of the ruble during the credit crisis.

Best Performer

Ulyukayev’s comments helped make Canada’s dollar the best performer among the 16 most-traded U.S. dollar counterparts yesterday. The currency appreciated as much as 1.5 percent, the biggest intraday move since Sept. 1, to C$1.0092 per U.S. dollar. It traded at C$1.0099 at 5 p.m. in Toronto yesterday, compared with C$1.0247 on Nov. 23. One Canadian dollar buys 99.02 U.S. cents.

The Canadian dollar’s share of Russia’s reserves, which rank behind only China and Japan, is so small it hasn’t yet affected currency allocations, Ulyukayev said.

“Within several months we may be able to speak about more substantial volumes and any changes in the structure” of the reserves, he said.

Canada’s dollar, dubbed the loonie after the aquatic bird on the country’s dollar coin, has gained 4.2 percent against the U.S. dollar this year on increasing demand for higher-yielding assets and raw materials. Commodities generate about half of the country’s export revenue.

‘Theoretical Sense’

Bank Rossii is considering including the Australian dollar “in the list of currencies allowed for reserve allocation,” Ulyukayev said. Australia’s currency, also linked to commodities, has risen 9.6 percent against the dollar this year.

“We are considering several other currencies, but we are looking at them more in a theoretical sense than a practical one,” Ulyukayev said.

There is growing support for a new global currency system that is less reliant on the dollar as a reserve currency, South African Finance Minister Pravin Gordhan told reporters in Pretoria on Nov. 15. While the dollar’s position “‘has been shaking,” there is no other currency that would serve as an alternative, Japan’s Prime Minister Naoto Kan said Nov. 19.

The greenback will remain the “leading” global reserve currency even as new rivals appear, Ulyukayev said.

Dollar Leads

“There is competition and it looks like it will intensify among currencies that play the role of global and regional reserve currencies,” Ulyukayev said. “I think the dollar will be leading in this competition,” given the U.S.’s share of the global economy and its highly developed financial markets.

Russian President Dmitry Medvedev renewed his drive to reduce the dollar’s dominance and transform Moscow into a global financial hub, promoting the ruble as a reserve currency in his speech at the St. Petersburg Economic Forum in June.

The ruble has become a “regional reserve currency for the countries of the former Soviet Union” and nations with “a traditionally large share of trade with Russia,” Ulyukayev said. “This is seen in increasing volumes of settlements in rubles” and ruble-denominated Eurobond issues by borrowers outside Russia, he said.

China’s ‘Discrepancy’

China, the world’s fastest-growing major economy, started allowing the yuan to trade against the ruble on Nov. 22 to help internationalize the Chinese currency. Russian Prime Minister Vladimir Putin said this week that the yuan would start trading on Russian exchanges next month as the two countries use local currencies in bilateral trade.

The Chinese yuan will become a global reserve currency once it becomes fully convertible, Ulyukayev said. The yuan is allowed to trade 0.5 percent on either side of a daily fixing rate to the dollar as set by the central bank.

“There is a discrepancy between China’s share of global trade, GDP and the lack of convertibility” of its currency, Ulyukayev said. “If this discrepancy will be overcome quickly, the yuan will enter their ranks.”

Brazil’s real is unlikely to become a global reserve currency in the “near future,” he said.

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