The recent drop in the value of the Russian ruble against major foreign currencies has resulted in a surge of Russians selling off their dollar and euro holdings, according to a report by the Bank of Russia. The report, published in the bank’s monthly financial risks review, states that following the ruble’s crossing of 90 rubles to the dollar in early July, residents began offloading their foreign currency holdings, with $450 million worth being sold during the month.
The majority of these sales occurred in the first half of July. Overall, the ruble experienced a 2.3% decline against the dollar last month, the review reveals. The central bank notes that the pressure on the ruble is primarily due to the reduced foreign trade balance and low volumes of foreign currency earnings sales by exporters. However, it emphasizes that the July weakening of the ruble was relatively insignificant compared to its significant 10.4% drop against the dollar at the end of June.
The ruble has been gradually weakening against Western currencies for several months. Russian Finance Minister Anton Siluanov attributes this trend to changes in the country’s trade balance, as well as Western sanctions pressure and increased demand for foreign currency during the summer. In early June, the dollar was valued at around 80-81 rubles, but by July, it reached approximately 89 rubles. On July 6, the exchange rate even exceeded 93 rubles to the dollar for the first time since March 2022. This depreciation continued into August, with the ruble crossing 98 to the dollar on August 9.
Furthermore, the Bank of Russia’s report indicates that the Russian exchange-traded currency market is shifting away from the “toxic” dollar and euro towards the currencies of friendly countries or those that have not imposed sanctions on Russia due to the conflict in Ukraine. The share of the Chinese yuan in the market significantly increased, rising from 39.8% in June to 44.0% in July, which is an all-time high for Russia. Meanwhile, the share of the euro and the dollar decreased from 58.8% in June to 54.4% in July.
This shift in the currency market reflects Russia’s efforts to diversify its foreign currency reserves and reduce its reliance on Western currencies amidst ongoing geopolitical tensions. The country is increasingly turning towards currencies of nations that maintain friendly relations and have not imposed sanctions. This move aims to mitigate potential risks associated with the volatility of Western currencies and the uncertainties of international geopolitical dynamics.
In conclusion, the drop in the ruble exchange rate has prompted Russians to convert their dollar and euro holdings into rubles. The trend of selling off foreign currency has been driven by concerns over the ruble’s depreciation and efforts to diversify currency holdings. Russia’s move to shift towards currencies of friendly nations reflects its strategy to reduce exposure to Western currencies amid geopolitical uncertainties.
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