Russia, Ahead of Summit with US, Says Sovereign Wealth Fund's Dollar Assets Will Be '0%' (Comprehensive)

"Reducing the Share of Dollar-Priced Oil Export Contracts"
China, the World's Second-Largest US Bond Holder, Also Expected to 'De-dollarize'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The Russian government announced that it will convert all dollar assets within its National Wealth Fund (NWF) into other currencies such as the yuan or euro, and reduce the proportion of dollar payments in oil export contracts. On the surface, this is interpreted as a psychological battle ahead of the summit with the United States, but there are also views that it signals the start of full-scale ‘de-dollarization’ between China and Russia ahead of the launch of China’s digital yuan. If China, which holds a massive amount of over $1 trillion (about 1,120 trillion won) in U.S. Treasury bonds, aggressively reduces its dollar assets, there are concerns about sharp fluctuations in the dollar’s value in conjunction with the U.S. government’s large-scale stimulus measures.

On the 3rd (local time), Anton Siluanov, Russian Minister of Finance, attended as a speaker at a session of the International Economic Forum (IEF) held in Russia and stated, "The process of converting dollar assets in the Russian National Wealth Fund (NWF) into yuan, euro, gold, and other assets is underway," adding, "Within the next month, the dollar assets in the NWF will be reduced to 0%." The dollar assets account for about 35% of the total NWF assets, estimated at approximately $41.5 billion.

Alexander Novak, Russian Deputy Prime Minister and Minister of Energy, who also attended the IEF, said, "Russia will reduce dollar-denominated contracts in oil export agreements going forward," adding, "We do not intend to move away from the international currency, the dollar, but if U.S. pressure continues, we will gradually have no choice but to do so."

The repeated statements by senior Russian government officials about reducing the dollar proportion are superficially interpreted as a psychological battle ahead of the summit between U.S. President Joe Biden and Russian President Vladimir Putin scheduled for the 16th. According to the Wall Street Journal (WSJ), Tim Ash, Chief Strategist at BlueBay Asset Management, analyzed, "The indication of reducing dollar assets is a show of strength message that Russia can withstand U.S. economic sanctions."

Although the size of Russia’s dollar assets itself is around $40 billion, and the immediate impact on the market is expected to be limited, concerns are rising that if China’s de-dollarization, ahead of the launch of the digital yuan, also begins simultaneously, the dollar’s value could be significantly shaken. According to the U.S. Treasury Department’s report on the holdings of U.S. Treasury bonds by central banks worldwide released that day, as of the end of the first quarter of this year, China’s central bank held $1.1004 trillion in U.S. Treasury bonds, ranking second in the world after Japan ($1.2403 trillion).

Michael Greenwald, former U.S. Treasury Department foreign affairs officer, explained in an interview with CNBC that "If China’s digital currency is fully implemented from next year and countries under U.S. sanctions such as Russia and Iran start to adopt it, it will have a significant impact on the dollar’s value and become a major concern for the United States."

This content was produced with the assistance of AI translation services.