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Russia's Record High Gold Reserves

It may surprise most investors to find out that Russia's Central Bank holds more gold reserves than US Dollar reserves. 

Earlier this year, Russia's gold reserves hit a record high, and the nation's bid to stockpile on the precious yellow metal continues to surge. Russia's gold reserves went from a record low of USD 2 billion in 1995, to what is now worth more than $130 billion. Let us look at how Russia came build up such a large position in gold.

Russian Gold Reserves Hit a Record High

Russia has been systematically de-dollarizing its reserves in an effort to reduce US dependency. Data from the Bank of Russia highlights that its foreign reserves increased by USD 1.4 billion in just a week, hitting a value of USD 639.6 billion as of January 2022.

Since 2014, Russia has decreased its dependency on the US Dollar while accumulating gold instead. At present, the Russian Central Bank has the fifth largest gold holdings in the world.

A recent Bank of Russia report shows that gold accounts for 23% of its reserves. The rest consists predominantly of liquid foreign assets which are held by the Bank of Russia. They also consist of foreign currency funds, special drawing rights (SDR is a reserve means of payment issued by the International Monetary Fund), and gold.

Russia first exceeded its targeting threshold by the central bank in 2008, with holdings valued at USD 598 billion. In the years following, the reserves had plunged inconsistently, reaching levels as low as USD 356 billion in 2015. Currently, the value has almost nearly doubled to about USD 634 billion.

Why Russia is Piling Up On Gold

With looming geopolitical tensions, and the ongoing threat of the pandemic, Russia has increased its investment in foreign currency, particularly the Euro, and its investment in gold. Vladimir Putin has progressively replaced trade in dollars with that of gold. Russia has been trying to circumvent damage caused by the imposition of western sanctions and overdependence on the USD.

International sanctions of Western financial markets have hit Russia hard. Gold reserves, as a result, come as a resolution to replace investment and trade in something other than the dollar (US). Furthermore, economists are claiming that Russia may be using its large gold reserves to fund geopolitical issues with Ukraine.

Russia is also trying to stabilize and increase trade in its own currency, the Rouble. As the USD is presently at the centre of the exchange-rate system globally, the cost of doing trade means relying on the mentioned currency.

Conclusion

If Russia's gold reserves keep increasing while the country decreases its dependence on the US Dollar, there is a high chance that the Kremlin can push for a de-dollarization and upset major economies to become a leader in international trade. 

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