Central Bank of Russia calls a loonie tune

Plans by the Central Bank of Russia to add Canadian dollars to Russia’s fiscal reserves have analysts saying the loonie isn’t likely to be become a big player, but that it could help hedge against a sagging U.S. dollar.

With the worlds third largest fiscal reserves Russia’s central bank attracted plenty of attention when it announced that the ‘loonie’ would be added to the roughly $450 billion dollar mix.

With 15% of the total reserve believed to be in gold, the Canadian currency will join the other 85% which is predominantly in U.S. dollars and Euros, with about 10% shared between the Yen and Pound Sterling.

The announcement came in the wake of repeated calls by Russia’s political leaders for a lessening of reliance on the U.S. dollar, and in the wake of recent gold purchases. Vladimir Bragin, Chief Economist at Trust bank says the move is part of a strategic diversification.

“The announcement comes as part of the global diversification announced by the Central bank. It's being considered along with buying more gold. The bank is looking for more assets from different economies, this time Canadian for example."

The Canadian dollar represents an economy which is home to four of the world’s 15 AA rated banks, and a populace not nearly as indebted as their American neighbours. It has risen against the U.S. currency over the last year or two. But it’s also a much smaller economy than the U.S., and one, like Russia, largely commodity driven. Vladimir Osakovsky, Development Strategist at Unicredit Securities doesn’t believe any loonie buying spree will large scale, but that it offers some hedge against a sliding U.S. dollar.

“I don’t really think this exposure to the Canadian dollar will be more or less significant. It is unlikely to be that they will put in more than 1 to 2% of total reserves. This kind of diversification can play it role in the good times when, for example, dollar falls and is weakening, and other currencies, like the Canadian dollar for example can strengthen quite a lot.”

The move comes as global central banks are increasingly looking for stores other than the greenback, with India recently buying 200 tonnes of gold, and speculation China is doing likewise. With Russia’s central bank also looking diversify its reserve base, buying the Canadian dollar is not a loonie tune.

Read also – Bank of Russia To Invest in Canadian Dollar