Russia to reroute SWF assets to Gold:
Russia is planning to convert its reserves to gold lately, and its gold reserves now stand at a record high. The country also prefers hard assets as its global reserve currency. After selling a major share of its fiat reserves, $81 billion in US Treasury bonds, Russia has liquidated most of its paper-based reserves. All this happened during the time when US-Russian relations hit rock bottom over the last 2 years.
Russia’s gold reserves now stand at more than 2200 metric tons or roughly 72 million troy ounces. But it seems like that this bullion buying spree isn’t enough for Russia as their Finance Minister Anton Siluanov said in December that Russia could invest part of its SWF in gold. He sees an investment in gold as more sustainable in the long run. The Russian Central Bank, along with China, is the biggest buyer of the gold worldwide. This is partly due to western sanctions and ongoing trade wars with the emerging countries.
The Russian Nation Wealth Fund, which is worth $124 billion and is controlled by the Finance Ministry, garners revenues from the exports of oil and was designed to fund the pension system. However, the decision is yet to be made regarding the investing fund’s money in precious metals. “There are a lot of supporters and a lot of opponents” the ministers added in its statement.
Russian gold miners, Polyus and Polymetal along with Kinross of Canada, are Russia’s biggest gold producers. They primarly sell their gold to Russian commercial banks. The Central bank then buys the gold from the commercial banks.
It is still unclear if the Finance Ministry would invest in gold and other precious metals or not. However, in November the ministry proposed spending about $16 billion on infrastructure projects and exports from 2020 to 2022 to boost economic growth. This money was to come from the country's SWF. The divergence of money from the fund, which primarily accumulates oil revenue, could hurt the already struggling petrodollar.
Russia has strict rules and regulations regarding its SWF, especially when it comes to its policies. This means that the Russian government will only be able to divert money from the Fund when its liquid assets exceed 7% of the GDP, which is expected to happen in 2020.
The Russian policy shift towards gold is not just associated with the National Wealth Fund. The country has been planning to adopt a new financial mechanism since the oil prices crash of 2014 when the petrodollar exports fell to negative rates. Experts fear that the petrodollar will die and that the global debt bomb will cause the collapse of the financial system as we know it. If the long-feared financial crisis occurs, nations will look for stable assets that can help them out during times of uncertainty. Russia proposed the idea of a cryptocurrency for the BRICS countries, the largest trade block after the Eurozone, that is comprised of Brazil, Russia, India, China, and South Africa. Russia suggested that the digital currency could be used for trade between these countries and could be backed by gold, an asset which China and Russia have both bought in huge numbers in recent years.
However, Minister Anton Siluanov added that the ministry does not propose the Fund should be investing in gold although it is worth considering. The Petrodollar is still safe, but Russia, like China, is not planning on stopping its gold buying campaign anytime soon. Gold is still accounts for a small percentage of reserves for most central banks around the globe but this could change if other central banks follow Russia and China.