On 4th June 2021, the finance ministry of Russia has announced the removal of the ‘Dollar’ from the National Wealth Fund. National Wealth Fund is an accumulated fund of oil reserves of Russia. Currently, the dollar accounts for nearly 35% of this fund which is expected to be changed into currencies such as the euro, yuan etc. The total worth of the national wealth fund is $186 billion now will be changed into other currencies. Russia has taken these steps in response to the economic sanctions imposed by the USA in April alleging Russia’s role in the 2020 US elections. The US has also alleged Russia of being involved with large scale computer network hacking and other illegal activities. Due to the sanctions, the US banks and institutional investors cannot invest in the Russian government ruble-denominated bonds. The analysts believe the new set of sanctions may damage the Russian economy to a significant extent. But according to the ‘wall street journal’, the decision to convert dollar holdings into other currencies is Russia’s clear message to the US that it will not fear any of sanctions imposed by the US.
Sovereign wealth funds are state-owned investment funds that help governments in investment, the flow of wealth, crisis management etc. These funds are generally for investment in bonds, stocks, gold and real estate, etc. Almost every big economy maintains one or more national wealth fund. According to the world economic forum, by January 2021, the Norwegian government pension fund is the world’s richest sovereign wealth fund worth $1.1 trillion. China investment cooperation fund is the second richest in the world with a valuation of around $1 trillion.
The emergence of the dollar as a global currency for trade
From 1870 to the first world war, the pound sterling was used extensively across the globe. This period was dominated by the economies of the UK and the US. But between WWI and WWII gold standard collapsed and the importance of the pound sterling also declined. The economic turbulence during the interwar period had made world leaders worried about the future of the global economic system. After the end of the second world war, 700/representatives from 44 countries met in a high-level conference at Bretton Woods, New Hampshire in the united states. The objective of this conference was to create a new global agreeable financial system. The Bretton woods conference established two important financial institutions- the world bank and IMF. This conference also declared the US dollar as an international reserve currency. The reason behind the US dollar being declared as an international reserve currency was its exceptional control over the global gold reserve.
Russia has intensified ‘de-dollarisation’ in the post-2014 period when its relations with the west is continuously deteriorating. With continuous deteriorating US-Russia relations, Russia’s relations with China is substantially improving. Since 2014, Russia is also working on an international monetary transfer system like china. Slowly Russia is decreasing its trade-in dollar and increasing the use of the euro and yuan. Both Russia and China have declared to take joint initiatives to end western dominance on the international payment system and the dependence on the US dollar. On 26th April 2011, Bloomberg reported that the line in global exports, the share of US currency has dropped by as much as 50%.