The Governor of the Bank of Russia, Elvira Nabiullina, has announced that the bank has created a reserve of assets that are not susceptible to being affected by U.S. sanctions. According to Nabiullina, Russia has built a “safety cushion” in these assets while it continues to work on creating new reserves in non-U.S. sanctioned assets.
Nabiullina stated that Russia has managed to create a “safety cushion” for its economy, based on assets that are not susceptible to being blocked by U.S. sanctions. She explained that since the country was affected by a wide package of sanctions due to its involvement in the Russia-Ukraine conflict, the bank has focused on piling up this kind of resource. Nabiullina stated that the country could “relax” due to the existence of this reserve and explained that the country would keep stockpiling such assets. However, Nabiullina did not specify the nature or the kinds of these “non-sanctionable” assets.
The wide package of sanctions that the Russian Federation has faced has changed the configuration of its international trade partners, with the nation leaving European and American imports and leaning more towards improving its relationship with countries like Iran and India. Russia is currently finalizing trade agreements with both countries.
The sanctions applied to the Russian Federation include freezing gold and foreign currency reserves abroad and barring countries and companies from conducting transactions with the Bank of Russia and selected Russian companies and individuals. The first batch of these sanctions was recently extended by U.S. President Joe Biden, reiterating that the activities of the country still pose an “unusual and extraordinary threat” to the security of the U.S. However, Nabiullina indicated that there is ongoing work to retrieve these frozen assets comprised of U.S. dollars and euros.
The so-called “weaponization” of dollar-centric sanctions has been brought to the spotlight due to the rise of an international de-dollarization movement that seeks to build alternatives around the U.S. currency. Janet Yellen, U.S. Treasury Secretary, recently made reference to the effects that the overuse of the sanctions might have on the status of the U.S. dollar, stating: “there is a risk when we use financial sanctions that are linked to the role of the dollar, that over time it could undermine the hegemony of the dollar.”
The claimed new composition of the reserves of the Bank of Russia is an interesting development that could have significant implications for the country’s economy. It remains to be seen how effective this “safety cushion” will be in protecting Russia from further sanctions, but it is clear that the country is taking steps to mitigate the impact of U.S. sanctions. As the de-dollarization movement continues to gain momentum, it will be interesting to see how the global financial landscape changes in the coming years.