Wednesday, May 20, 2009

Not in U.S. happiness

The main currency reserves of the Bank of Russia was replaced for the first time in its history. On 1 January 2009 the share of euros in reserves was 47.5 percent, while the dollar - only 41.5 per cent. A year ago layout was completely the opposite (48 percent dollars and 42 per cent of Euro). Perhaps the reason for the shift in favor of European currency has become a global financial crisis, which the Central Bank was forced to sell dollars en masse.

Over the past two years the share of dollar reserves has declined steadily. At the end of 2006 it stood at 49 per cent of reserves, but at the end of 2007 - 47 percent. The share fell in the U.S. primarily by growth in the euro, which rose from 40 to 42 percent. However, over the previous year's change in shares proved unusually sharp. Does this mean that the Central Bank decided to make a truly European currency to its principal reserve?

In August 2008 the volume of international reserves of the Central Bank has reached a historic high and came close to 600 billion U.S. dollars. However, in September began a rapid fall in reserves, and by January they dropped to 426 billion dollars. The overall decline compared with a peak of just under 30 percent. This collapse was due to a sharp rise in the ruble exchange rate, which the Government and the Central Bank promised to curb. As a result, a significant portion of reserves left to meet these guarantees.

For the same reason, apparently, has changed the structure and reserves. U.S. all fall in price much faster than the euro, so the bulk of the portion of the population who chose to "zavalyutit" personal savings, has chosen the American currency. Do not forget about the companies, which need to repay foreign debts, mainly the dollar. Therefore, the Central Bank was forced to sell it in dollars, so that people and banks have been able to meet this demand.

This is the simplest explanation for this sudden change. To provide that the Central Bank has decided to consciously make a bet on the euro, it is quite difficult. While officials have repeatedly called upon to abandon the dollar because it is not very predictable reliability, structure bivalyutnoy basket Brokers, however, has not changed - it still consists of 0.55 dollars and 0.45 euros. Remain unchanged, and the preferences of Russians. Despite the active promotion of the Euro (including cash) in Russia, most still prefer to work with already accustomed "to our dollars."

Moreover, the crisis in the U.S. has shown itself with the best hand, whereas the rate of the euro against the U.S. currency declined significantly - by almost 20 per cent. As a result, CB was the euro at a time when the rate of the currency fell to multi-minima.

In general profitability of investments in the Central Bank currency - a separate issue. For example, about 10 percent of the reserves of the British pound sterling, while the Japanese yen - less than 1 percent. Meanwhile, among the currencies of developed countries, namely, the pound has suffered the heaviest losses since the beginning of the crisis, marked down from $ 2 to up to 1.4. While the yen, on the contrary, until January in price rapidly, and now its rate to the dollar by 10 per cent above pre-crisis. Despite all the upheavals of the Japanese economy, which in the first quarter fell by 12 percent, investors continued to be the most reliable yen currency assets.

Data on the ratio of currency reserves in the Central Bank published in the annual report, which is at the bank has not yet been posted, but have been sent to the State Duma. Meanwhile, the reserves as a whole over the past few months to the end of the year continued to decline. On May 8, the volume was 385.2 billion dollars.

During this time, and changed by exchange rates. For example, the euro rose to U.S. by 7-8 per cent. With the gradual "rassasyvaniya" crisis of investor interest in more risky assets, including those who nominated and the euro is rising, and therefore the dollar to the European currency will decline.

The Russian Central Bank has sufficient caution in diversifying its currency reserves and does not add the eggs in one basket. You can do this by comparing the ratio of currency holdings in the Bank of Russia with the global picture. Globally, the dollar has continued to hold leadership remain world number one reserve currency, with a large margin. At the end of 2008, 64 percent of the world's reserves kept in dollars, while the euro - only 26.5 per cent. In many ways, this ratio is supported by China, which owns the largest reserves in the world (about 2 trillion dollars, or nearly half of all world ZVR). China is a leading trading partner of the United States, and for the Chinese, it is natural to rely on the dollar.

Talking about the specific weight of different assets on the balance sheet of the Bank of Russia, we should mention about where the funds are invested. All assets of the Central Bank are divided into operating and investment, with the last volume is much higher. Operating assets, as it should have their name used for the daily work of the Bank of Russia. These funds, in particular, go to the repo (short-term loans to banks against collateral). Investment is invested for profit.

Recently, the main tool for the investment of Central Bank became American debt. More recently, Bank of Russia is actively invested in the bonds of so-called "companies with state sponsorship" (GSE) United States - in particular, nebezyzvestnyh mortgage agencies Fannie Mae and Freddie Mac. It was believed that their debts are reliable as well as the public, and yield on these bonds is higher. Since the crisis began, however, it became clear that these companies are deeply unprofitable, and there are only due to the financial makeup of the American government. Once the strategy of the Central Bank has been severely criticized, the investment in GSE fell more than 20 times. The greater part of Bank of Russia released funds transferred directly into gosobligatsii.

In March 2009 the Central Bank investment in U.S. government debt has increased over the same month the previous year to more than three times, reaching 134 billion dollars. Thus, Russia became the fifth largest among all foreign creditors U.S. after China, Japan, oil exporters and the Caribbean offshore (the latter two categories traditionally adopted to take into account the complex).

Vernet whether the dollar in the future, its first position among the foreign reserves Russia is uncertain. Much will depend on the behavior of China. The fact that relations in the financial sector between China and the United States are deteriorating, not to say lately just lazy. So far, China has continued to regularly invest their foreign exchange resources of the huge debt the United States, but from Beijing all the louder voices, disgruntled current order of things. If the United States will continue to "tease" China is constantly increasing dollar estate and thereby risking depress Chinese investments, the Chinese may react quite harshly. In this case, interest in the dollar would almost certainly fall in the world, and Russia to become a pioneer in the process of changing the main global reserve currency.

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