Russia’s Gold and Foreign Exchange Reserves: Critical Analysis

Abstract

The paper examines the condition of Russia’s gold and foreign exchange reserves over the past 15 years. It is demonstrated that in some years the surplus of Russia’s balance of payments published by the Central Bank was greatly overstated. In particular, in the Russian foreign investments were included so-called “suspicious transactions” being factually funds irrevocably withdrawn abroad. It is found that Russia’s gold and foreign exchange reserves exceeded their requirements many times over, given the internationally accepted criteria of adequacy of international reserves. This is mainly because, with a view to export support, the Bank of Russia maintained for years undervalued ruble’s exchange rate by foreign currency withdrawing abroad. Attempts have been made to assess what the maintenance of huge foreign currency reserves really costs the country. Changes in the geographic distribution of foreign exchange reserves due to foreign policy events are reviewed. The principal reasons for the rapid growth of the world price of gold, due to which gold reserves, in contrast to foreign exchange reserves, had an acceptable rate of return, are indicated.