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Is Russia Building Up Currency Reserves again?

👉 Unfortunately, Bank of Russia is not disclosing market price (mainly foreign exchange rates) impacts making the analysis of its currency reserves almost meaningless
👉 Therefore, we estimated market price driven changes to map out „real“ (net) new flows/investments
👉 Surprisingly, Bank of Russia seemingly started rebuilding its reserves, over-compensating for market price driven declines

Market Price Changes Have Substantial Impact on Foreign Currency Reserves, But Are Not Disclosed

The Bank of Russia has resumed weekly publications of its international currency reserves as we have mentioned before. Reserves are, however, not split into separate currencies and gold. Subcategories were previously disclosed on a monthly basis, but are not anymore.

Furthermore and more importantly, there is no disclosure of market price changes, which can have a substantial impact on weekly dollar values, given Bank of Russia’s high share of gold and non-dollar currencies.

Bank of Russia Has Seemingly Started Rebuilding Its Reserves, Overcompensating Market Price Driven Declines

So, based on Bank of Russia’s restrictive disclosure there is no way to show, whether changes in foreign currency reserves are due to market price (exchange rates and gold) related revaluations or due to net new inflows/outflows. As this is unsatisfactory, we tried to back out the two effects:
In a first step, we have estimated the split of Russian currency reserves according to previous publications. Secondly, we applied market price changes of gold, the Euro, the Yuan and the British Pound vis a vis the US-Dollar to figure out the impact of revaluations on Russian currency reserves. This allows us to calculate net new flows (investments/divestments) of the Bank of Russia as a residual on a weekly basis, with a certain degree of remaining uncertainty, of course. For instance, potential price movements of foreign money market instruments/securities held by the Bank of Russia are excluded.

The results are as follows:

Unsurprisingly, total changes of currency reserves in the five weeks following the start of the war were predominantly negative, due to a mix of net outflows and market price developments. However, in the last two reported weeks, the pattern has become quite different.
Adjusting for revaluation effects Bank of Russia has seemingly started to rebuild its currency reserves, overcompensating for negative market price effects, i.e. Net New Inflows were positive other than before and also substantially higher than Total Changes indicating how important it is to adjust for market price changes/revaluation.
Whether this is the start of a trend remains to be seen, but we feel it is an interesting if not astonishing outcome in any case