Mar 22, 2023
Russia Targets Dollars, Euros Anew by Varying Bank Reserve Ratio
(Bloomberg) -- Russia’s central bank is making it more costly for commercial lenders to have liabilities in what it calls “unfriendly” currencies by raising mandatory reserve requirements for foreign tender such as US dollars and euros.
The monetary authority boosted the amount of money that banks must set aside as reserves for “unfriendly” currencies to 7.5% while cutting it for others to 5.5%, according to a statement.
The change will go into effect from April 1 and marks the first time that the central bank differentiated the ratios. Previously, the requirement was 7% for all foreign currencies. The ratio for ruble liabilities is 4%.
Authorities in Russia are devising new measures to discourage businesses and people from using the currencies of its adversaries that imposed sanctions over the Kremlin’s invasion of Ukraine.
The effort has yielded some results. In 2022, Russians cut their savings in foreign currency almost in half to the equivalent of 3.88 trillion rubles ($50 billion) amid risks from sanctions, according to a central bank report for January.
While the share of yuan deposits grew over the year to 11% from zero, the dollar’s proportion changed only slightly, falling by 8 percentage points to 68%, the report showed.
Russia is also still using what officials call “toxic” currencies for near half of its exports, even after sanctions deprived the central bank of access to about half of its international reserves, leaving it in possession of only gold and yuan.
The goal of the latest step is “to stimulate the change in the structure of foreign-exchange liabilities of credit institutions in favor of the currencies of friendly countries” and generally allow for the share of foreign currencies to drop further on bank balance sheets, the Bank of Russia said in its statement.
The currencies of “friendly” countries, mostly yuan, have made some inroads into the settlement of trade and other parts of Russia’s economy. But the yuan still lags behind the share of dollars and euros on the balance sheets of banks.
Other countries Russia considers friendly include Turkey, India and the United Arab Emirates.
(Updates with data from Bank of Russia in 5th graph)
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