Russia Ditches US Dollar for Gold as Tensions Rise

The comments below are an edited and abridged synopsis of an article by Linas Jegelevicius

Russia’s US dollar reserves have shrunk from $96.1 billion in March to just $14.9 billion in May, according to the Russian central bank. Its governor says the decision will help protect the Russian economy and diversify the bank’s reserves.

In March, Russian President Vladimir Putin called the monopoly of the US dollar “not reliable enough and dangerous for many.”

The Bank of Russia has been buying gold every month since March 2015, overtaking China as the fifth-biggest sovereign holder of gold.

Russia added 500,000 ounces of gold (15.55174 tons) to reserves in June and has bought some 106 tons of gold since the start of the year, with total reserves now approaching the 2,000-ton mark. Last year, Russia added a record 224 tons of gold to its reserves.

The Russian central bank hinted that it could invest the money from the US dollar sales not only into gold, but also into IMF bonds and Chinese bonds.

Russia’s liquidation of its US Treasuries had little effect on the dollar. Instead, China—the world’s largest holder of US Treasuries—has had the most power to affect the dollar rate and the yield of US bonds.

The upbeat prognosis of Russia’s gold mining industry also boosts the central bank’s confidence that buying gold is the way to go.

The Russian gold mining industry has almost doubled its volume over the last two decades and anticipates registering new records soon.