- Russia has struggled to find alternatives to foreign currencies since Western nations imposed sanctions, the central bank governor said.
- “We have to look to the future, but at the moment I find it difficult to make specific suggestions,” Elvira Nabiullina said on Monday.
- She also noted that the Russian economy will undergo a “structural transformation” as it endures the sanctions.
Since Western nations imposed economic sanctions on Russia, it has struggled to find alternatives to its frozen reserves of foreign currency, according to Russian Central Bank Governor Elvira Nabiullina.
Russian officials estimate the sanctions froze about half of its $642 billion in reserves, leaving it mostly with Chinese yuan and gold.
“We have to look to the future, but at the moment I find it difficult to make specific suggestions,” Nabiullina told a parliamentary committee in Moscow on Monday. “The list of countries issuing liquid reserve currencies is limited and they are the ones that have taken hostile action and limited our access.”
Prior to invading Ukraine, 11% of Russia’s holdings were in dollars, as the bank had drastically reduced its exposure to the United States for years while adding yuan and euros to its reserves, Bloomberg reported. . Today, more than a third of its reserves are in euros, with additional investments in pounds and yen.
But all of the above was frozen by foreign countries in the middle of the war, which forced the Russian central bank to take drastic measures. He had to resort to steep interest rate hikes and strict capital controls, such as limits on the amount of foreign currency Russians could transfer.
The central bank has since eased interest rates a bit, and Nabiullina said on Monday that a further rate cut was possible along with an easing of requirements for exporters to sell foreign currency products, according to Reuters.
The central bank is also planning legal retaliation against countries that have blocked Russian assets, but any action “must be very carefully thought out…so that we can achieve the desired outcome,” she added.
Meanwhile, Nabiullina said it would take two years to bring inflation back to its 4% target and warned that the effects of sanctions are shifting from financial markets to the real economy.
Russian industry will have to find new international partners to adapt to the sanctions, spurring long-term changes in the economy, she said.
“The period the economy can live on the reserves is limited,” Nabiullina said. “And already in the second and third quarters, we will enter a period of structural transformation and the search for new business models.”