The balance sheet of the Central Bank of Russia
The balance sheet of the Central Bank of Russia
In the fog of war
The outbreak of war in Ukraine in the past week has pushed other concerns to the background. I'm not sure I can write about anything else, but I'm also not sure I can add a lot to discussion about the conflict, especially since everyone seems to be an expert on Russia's foreign reserves at the moment. In this post, in an effort to add to something visual, succinct and at least a little bit helpful, I look at the balance sheet of the Central Bank of Russia, and in particular at its foreign reserve position.
The balance sheet of the Central Bank of Russia
International sanctions have centered on disconnecting Russia from the global financial system. One important vector for such action has been the country's foreign exchange reserves. These appear as assets on the balance sheet of the Central Bank of Russia (CBR). As of November 30, 2021, the CBR's balance sheet stood at around RUB 54 trillion (729 billion US dollars at that time):
Over the last couple of years, the balance sheet has been expanding: more FX reserves on the asset side, more government deposits on the liability side. The CBR has a large equity position, and there was some movement between unspecified other liabilities and capital in late 2020 and early 2021:
These local-currency amounts are appropriate for thinking about CBR's position within Russia's domestic financial system. That system, however, is not operating smoothly, and the exchange rate is not stable, so this can only be one reference point among several as the situation develops.
Attention has been focused on the CBR's foreign exchange assets, which have been targeted by the sanctions. Many of these foreign assets are held in custody or as deposits with banks regulated by the governments of other countries. By making it illegal for these banks to transact with the CBR, sanctions can render Russia's FX reserves unusable, though note that there are carve-outs for oil and natural gas transactions. CBR also has a large position in gold, apparently physically held in the country, for which it could likely find a buyer, especially if it were to offer a discount. This graph shows Russia's foreign reserves in US dollar terms:
Hopefully
Of course, everything is changing by the day, so I'm not sure there are any conclusions to reach right now. Hopefully these snapshots of the CBR's balance sheet can be of use to Soon Parted readers as we try to parse the events as they unfold in the days and weeks to come.
Great note, thanks Daniel. Question please: are the USD "FX reserves" held as assets on the balance sheet of the CBR liabilities of US (and foreign) commercial banks, or are they liabilities of the US Fed? If the latter, what form do they take? They aren't the same "central bank reserves" that the Fed uses to settle interbank payments or manage QE, are they? Thanks.