Russia’s foreign exchange reserves have been in focus in 2022 as economic sanctions imposed following the invasion of Ukraine have put pressure on the country’s finances. This article will explore the background, composition, and outlook for Russia’s FX reserves.


Foreign exchange reserves are assets held by a national central bank in foreign currencies. These reserves play an important role in supporting and maintaining confidence in a country’s currency and economy.

Russia has been building up its FX reserves in recent years, buoyed by revenues from oil and gas exports. However, the reserves have declined sharply in 2022 as a result of wide-ranging economic sanctions that restrict Russia’s access to foreign capital and overseas assets.

This article will provide an in-depth look at the composition, management, and adequacy of Russia’s reserves. It will also analyze the impact of Western sanctions on the reserves and Russia’s ability to deploy them. Factors influencing the future trajectory of the reserves will also be assessed.

Background on FX Reserves

Foreign exchange reserves are typically held in major reserve currencies like the U.S. dollar, euro, British pound and Japanese yen. Central banks maintain reserves for several purposes:

  • Hedge against external shocks and maintain currency stability
  • Intervene in foreign exchange markets during periods of volatility
  • Service external debt obligations and pay for imports
  • Maintain confidence in monetary and exchange rate policies
  • Provide backing for domestic currency in circulation

Russia’s reserves are managed by the Central Bank of Russia (CBR) and held abroad across global financial centers. The level of reserves reflects the ability of an economy to meet its foreign currency needs and obligations.

Composition and Growth of Russia’s Reserves

Russia has been steadily building up its FX war chest since the 1998 financial crisis, when it defaulted on domestic debt and the ruble collapsed. The country learned its lesson and began amassing reserves to shield the economy.

Pre-2022 Levels

By February 2022, Russia had foreign currency reserves totaling over $630 billion, the fourth largest in the world after China, Japan and Switzerland. The reserves include:

  • Gold: Around 20% is held in monetary gold. Russia has over 2,300 tonnes of gold reserves valued at over $130 billion.
  • Foreign currencies: The majority is held in dollars and euros, with smaller amounts in pounds, yen, yuan and SDRs.
  • IMF reserve position: Russia has an allocated Special Drawing Rights (SDR) position worth around $5 billion.
  • Other reserves: Includes positions in international organizations and holdings of more esoteric reserve assets.

Russia’s reserves exploded higher between 2000 and 2008, climbing almost 10x from around $27 billion to peak at $598 billion. Surging oil prices and an undervalued ruble drove the rapid accumulation.

The global financial crisis saw reserves decline to $376 billion in 2009. But reserves were rebuilt to over $500 billion by 2012. Western sanctions after the 2014 Crimea annexation did not significantly impact reserve levels either.

Changes in 2022

The severe sanctions imposed after the Ukraine invasion have immobilized a sizeable portion of Russia’s overseas reserves though. By August 2022, total reserves were estimated to have fallen to around $570 billion.

Freezing of assets by foreign central banks and commercial banks has blocked Russia’s access to as much as $300 billion or half of its reserves. The CBR also spent over $90 billion in the first months of the Ukraine conflict trying to stabilize the ruble exchange rate as it plunged.

Gold reserves were untouched initially but sanctions may restrict Russia’s ability to buy and sell gold going forward. The IMF also suspended Russia’s SDR reserves.

As a result, the usable portion of Russia’s foreign currency reserves is now estimated at only around $250-300 billion. This is still sizable but more vulnerable given reduced energy export revenues and limited new reserve accumulation.

Management and Deployment of Reserves

Russia’s sizable reserves are managed very conservatively by the CBR, with a focus on liquidity and safety. The CBR does not actively invest reserves in risky assets or for speculative yield.

Asset Allocation

The CBR holds reserves across multiple currencies and asset classes. Allocation includes:

  • Cash deposits (45%): Held in custodian accounts with foreign central banks like the Federal Reserve and Bank of England. Also in commercial bank accounts like Citibank and JP Morgan. Provides liquidity.
  • Sovereign debt (40%): Highly rated government bonds of reserve currency issuers like U.S. Treasuries. Provides liquidity and safety.
  • Gold (13%): Physical gold held domestically and in foreign vaults like the Bank of England provides diversification.
  • Other (2%): Agencies, supranationals and other lower risk fixed income.

Conservative positioning reflects priorities of liquidity and capital preservation over return. As of March 2022, the CBR aimed to have liquid reserves covering 20% of money supply and 150% of short-term external debt.

Reserve Management and Oversight

Day-to-day management of reserves is handled by the CBR’s Departments of Reserve Management and Financial Stability. But the Reserve Asset Management Commission chaired by the CBR Governor oversees strategic management.

Investment options are limited to top-rated sovereigns and supranationals along with deposits at major central banks and systemic commercial banks. All decisions require consensus of the Commission. No active currency hedging or duration management is undertaken either.

Regulations also enforce segregation of responsibilities between execution, accounting and oversight. This conservative governance has minimized mismanagement risk historically.

Deployment of Reserves

The CBR has several options in utilizing its sizable war chest:

  • Currency intervention: Buying rubles to support the exchange rate during periods of volatility.
  • Import financing: Providing FX liquidity to critical imports like medicines.
  • Debt service: Servicing of external sovereign bond coupons and maturities. Access to frozen reserves is needed here.
  • Project financing overseas: Funding state-owned enterprises and infrastructure projects.
  • Geopolitical leverage: Reserves can potentially be deployed to counter Western sanctions pressure as well, subject to availability.

Prudent deployment is necessary given reduced reserves earning capacity and future uncertainty.

Impact of Sanctions on Reserves

Wide-ranging sanctions have significantly impaired Russia’s access to its overseas reserves. While the CBR still holds title to its foreign assets, the usability has been curtailed.

Asset Freezes

Western governments froze around half of Russia’s reserves held in their custodial accounts. Major asset freezes include:

  • EU: Frozen €300 billion of CBR reserves in European custodian accounts.
  • U.S.: Blocked CBR’s dollar assets held with the Federal Reserve Bank of New York.
  • UK: Froze gold reserves worth $140 billion held in Bank of England vaults.

Russia retains legal ownership but cannot access or sell the frozen assets without authorization. This limits the CBR’s ability to intervene in FX markets or actively deploy reserves in response to sanctions.

Gold Market Limits

Sanctions also potentially restrict Russia’s ability to transact in the gold market.

  • The London bullion market has barred Russian refiners from participating.
  • Transportation and insurance hurdles have arisen for Russian gold.
  • Sales may still be possible to large buyers like China and India, but with significant discounts.

If new gold production cannot be readily monetized or sold, Russia may have difficulty sustaining domestic production. Stockpiling bullion domestically also has negligible economic benefit.

Debt Payment Issues

Access to frozen reserves has been granted only selectively for coupon payments on sovereign Eurobonds, averting default for now.

But maturing bonds face repayment more uncertainty without reserve access. Major outstanding Eurobonds include:

  • April 2022: $2 billion maturity paid from domestic sources
  • May 2022: $2 billion maturity paid from domestic sources
  • 2023: $3 billion maturing
  • 2024: $2 billion maturing

Even with high oil revenues, Russia’s ability to repay large external debts is constrained without access to frozen offshore reserves.

Reduced Earning Capacity

Russia’s reserves now likely yield very low or negative real returns given constraints on investing in sanctioned markets.

Foreign bonds and equities are off limits. Return potential is now largely limited to low yielding custodial accounts or non-reserve currencies.

Loss of Reserves

In total, Russia has lost access to nearly half its pre-war reserves due to targeted asset freezes. Remaining reserves also earn negligible yields in current form.

However, the CBR retains control of a sizable liquid portion at home, and Russia’s current account surplus continues to accumulate some hard currency earnings.

Adequacy of Reserves Going Forward

While still sizable on an absolute basis, Russia’s ‘usable’ reserves are diminished. Requirements have also increased given higher economic uncertainty.

Import Coverage

A common rule of thumb is reserves should cover 3-6 months of imports. With over $240 billion in annual imports, Russia’s current reserves equate to roughly 8 months of import coverage.

However, sanctions restrict access to many imported supplies for technology, autos, aircraft etc. Reduced reachable imports means usable reserves cover a larger share of accessible imports currently.

Debt Service Buffer

With over $400 billion in total external debt, current reserves provide an adequate buffer on paper. But upcoming maturities could exceed currently usable reserves if market access remains blocked.

Exchange Rate Management

The CBR likely needs at least $90-150 billion in readily usable reserves to actively defend the ruble if oil prices retreat or sanctions tighten further.

Current estimated usable reserves of $250-300 billion provide an ample buffer for FX intervention. But the cost of sustained intervention depletes reserves quickly.

External Shocks Protection

Reserve adequacy also depends on exposure to exports like oil and capital flows. Russia’s narrow economic base and reliance on energy exports increases vulnerability to commodity swings.

Higher reserves provide a bigger buffer against volatility, but Russia’s access remains hampered.

Imposed Constraints

Import and debt payment restrictions mean Russia’s current reserves exceed short-term requirements. But blocked access to half the reserves reduces the buffer against negative shocks.

Outlook for Russia’s Reserves

Russia’s reserves remain sizeable but diminished in their capacity to protect the economy. Much depends on sanctions duration and changes in Russia’s access.

Import Substitution Efforts

Russia aims to reduce reliance on imported consumer goods, technology and inputs to lower future FX needs. But domestic substitution will take time to ramp up production.

Yuan Reserves

Shifting some reserves into yuan provides an alternative to dollars and euros. But yuan reserves are not readily usable currently with low market convertibility.

Gold Sales

Selling domestically stockpiled gold could raise hard currency if exports to large buyers are feasible. But excess gold sales may introduce volatility to the bullion market.

New Reserve Earning

With blocked access to half its reserves, new accumulation of hard currency reserves will likely be quite slow. Export revenue dependent on oil prices provides the main source.

Financial Isolation Easing

Western resolve to maintain current sanctions and reserve blocks is critical. Any easing restores Russia’s access to frozen capital.

Debt Repayment Challenges

Upcoming sovereign bond maturities may exceed usable reserves. But domestic debt repayment is more feasible. Restrictions on accessing frozen reserves exacerbates uncertainty.

Ruble Exchange Rate

The ruble has rebounded on strong demand and restricted imports. However, declining reserves leave Russia more vulnerable to episodes of capital flight or currency weakness, absent capital controls.


In summary, Russia built up substantial forex reserves over the past two decades, shielding its economy from sanctions pressure initially. However, restrictions have immobilized access to a large share of Russia’s overseas reserves.

While still sizeable, the usable portion is declining. This introduces liquidity risks and reduces Russia’s buffers to withstand negative economic shocks amid high uncertainty. Replenishing accessible reserves appears challenging currently given broad financial isolation.

Overall, the outlook depends on geopolitical developments and shifts in Western sanctions. But constraints on Russia’s reserves definitely raise risks on multiple fronts going forward. Careful management and deployment of remaining reserves is now critical.