Central Bank Reports Record Reduction In Foreign Currency Reserves

The volume of the gold and foreign currency reserves of Russia was $37.3 billion as of November 30 of this year. Accordingly, the reserves decreased by $1.3 billion in one week. Such a noticeable reduction in the gold and foreign currency reserves of the country is record in the past several years. Last time the gold and foreign currency reserves were falling so rapidly on the threshold of the infamous default in August 1998. It is not surprising that in addition to reporting these figures, the PR Department of the Central Bank found it necessary to explain that the reduction is mainly due to the redemption of the Finance Ministry's Eurobonds of the first issue on November 27. This report on the reasons for the fall in the gold and foreign currency reserves is quite unique, because the Central Bank's previous reports on a reduction in the reserves were limited to a figure as of a respective date. To all appearances, the Central Bank management will now take decisive measures to supplement the foreign currency reserves. First of all, this can be achieved through buying dollars from commercial banks not only at the inter-bank market, but also at morning special trading sessions for the US currency. In this connection the Central Bank will have to give up market interventions to support the ruble, possibly, not completely, but to a substantial extent, or at least to actively buy back previously sold foreign currency, and moreover, to buy more currency than it sells. At any rate, under the most optimistic scenario, the amount of gold and foreign currency reserves may reach the maximum level of $38.8 billion in 2001, whereas an increase in the volume of reserves to $40 billion, announced by Andrei Illarionov, economic advisor to the President of Russia, earlier, seems practically unachievable.