Russian finance minister says oil fund switching to foreign currencies

Russia is switching its oil windfall fund from rubles to U.S. dollars, euros and British pounds sterling, Finance Minister Alexei Kudrin said Wednesday, news agencies reported.

Kudrin said that he had signed an order on Monday for the transfer of the ruble-denominated Stabilization Fund to foreign currency deposits at the Central Bank.

Russia's swelling oil fund, which currently stands at 1.8 trillion rubles (US$66.7 billion, Ђ52 billion), is forecast to grow to about 2 trillion rubles (US$74 billion) by the end of 2006.

Kudrin said that the deposits would be held 45 percent in dollars, 45 percent in euros and 10 percent in pounds sterling.

The move will not result in any net purchase of foreign currencies because the rubles held in the fund will be exchanged into dollars, euros and sterling from the central bank's own reserves.

The announcement marks the first step toward a government investment program aimed at maximizing returns from the rainy day fund that will see it invested in Western government bonds and eventually also in blue-chip shares once legislation is passed permitting this.

The fund, which receives oil export revenues above a certain point, was created as an inflation-fighting tool to absorb the petrodollars pouring into Russia's economy as oil prices break new records and to help pay down foreign debt. Russia is the world's second-largest oil exporter after Saudi Arabia.

Kudrin said that the rate of return on the currency deposits would be 5 percent in U.S dollars and slightly less in euros.

Also Wednesday, Russian lawmakers gave initial approval to legislation that would ban businesses listing prices in euros and dollars and bar Cabinet ministers from peppering their speeches with references to currencies other than the ruble.

The measures, which passed easily in the 450-seat parliamentary lower house, are aimed at bolstering the authority of the ruble, which has staged a remarkable comeback after its chronic weakness during the economic turmoil of the post-Soviet era.

But opposition Communist lawmakers said that the new laws were an empty initiative that would not do anything to change Russians' continued preference for foreign currencies despite the stability of the ruble in recent years, reports AP.