RIETI Report September 20, 2024

The Russian sanctions and dollar foreign exchange reserves

Dear Readers,
Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we are featuring topics related to economic sanctions and the power of currency. With the freezing of Russia’s foreign exchange reserves, the positioning of the US dollar has come under scrutiny. In their column, RIETI Non-Resident Fellow Dr. Hiroyuki Ito and his co-authors investigate whether the recent events have shifted the balance of currency power, finding that the US dollar’s dominance largely remains intact.

We hope you will enjoy it. If you have any feedback, we would love to hear from you (news-info@rieti.go.jp).
Editors of RIETI Report (Facebook: @en.RIETI / X: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

The Russian sanctions and dollar foreign exchange reserves

Robert N MCCAULEYNonresident senior fellow, Global Development Policy Center at Boston University, Associate Member, Faculty of History at University Of Oxford

Menzie David CHINNProfessor, the University of Wisconsin

ITO HiroyukiNon-Resident Fellow, RIETI

Will the freezing of the Bank of Russia’s foreign exchange reserves undermine the dollar’s predominant role in official foreign exchange reserves? This column examines the aggregate evidence since end-2021 for any reduction in the dollar share of official foreign exchange reserves against a baseline constructed with data from 1999 through 2021. The observed dollar share in March 2024 differs little from the out-of-sample projection based on this baseline. On this showing, official reserve managers have not reduced the role of the dollar since the freeze of the Bank of Russia’s assets.

The effective freezing of nearly one-half of the Bank of Russia’s foreign reserves by a broad array of advanced economy governments in February 2022 led to a debate over whether this move would lead to a decline in the role of the dollar in official foreign exchange (FX) reserves. Previous freezes on the central banks of Libya, Iran, Venezuela and Afghanistan did not target hundreds of billions of dollars or such a large country. In this column, we review the aggregate evidence for diversification out of the dollar by official reserve managers since end-2021.

To read the full text:
https://www.rieti.go.jp/en/columns/v01_0215.html

Related papers

“Size of Major Currency Zones and Their Determinants”
ITO Hiroyuki (Visiting Fellow, RIETI) / KAWAI Masahiro (University of Tokyo)
https://www.rieti.go.jp/en/publications/summary/24050006.html

“Dollar Dominance in Cross-border Bank Loans and Its Response to Uncertainties”
ITO Hiroyuki (Visiting Fellow, RIETI) / XU Ying (Australian National University)
https://www.rieti.go.jp/en/publications/summary/23040008.html

“Do Traditional Models or the Dominant Currency Paradigm Explain China’s Export Behavior?”
Willem THORBECKE (Senior Fellow, RIETI) / CHEN Chen (Fuzhou University of International Studies and Trade) / Nimesh SALIKE (Xi’an Jiaotong-Liverpool University)
https://www.rieti.go.jp/en/publications/nts/24e062.html

“Drivers of Post-pandemic Currency Movement: Recurring impacts of sovereign risks and oil prices”
MASUJIMA Yuki (Deloitte Tohmatsu Financial Advisory LLC) / SATO Yuki (Goethe University Frankfurt)
https://www.rieti.go.jp/en/publications/summary/24040014.html

Related articles

“More than 6,000: How far are economic sanctions against Russia allowed to go as a result of the invasion of Ukraine?”
FUJI Kazuhiko (Consulting Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/fuji-kazuhiko/312.html

“Future of Dollar Key Currency System: Dollar’s position as key currency rock-solid due to unrivaled liquidity”
OGAWA Eiji (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/ogawa/10.html

"The lessons of the economic war on Russia"
ARMSTRONG, Shiro (Visiting Fellow, RIETI) / Tom WESTLAND (Australian National University)
https://www.rieti.go.jp/en/papers/contribution/shiro-armstrong/05.html

“Roundtable on the White Paper on International Economy & Trade 2022: Economic Impacts of Russia’s Aggression Against Ukraine”
ITO Asei (Faculty Fellow, RIETI) / SUZUKI Kazuto (Professor, the Graduate School of Public Policy at the University of Tokyo) / TODO Yasuyuki (Faculty Fellow, RIETI) / OKADA Yo (Consulting Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/okada-yo/01.html

Related events

“The Sword and the Shield: The economics of targeted sanctions”
Speaker: Daniel AHN (Global Fellow, Wilson Center)
https://www.rieti.go.jp/en/events/bbl/22072101.html

“An Overview of Economic Security (4): Economic Statecraft for Economic Security”
Speaker: Daleep SINGH (Chief Global Economist and Head of Global Macroeconomic Research at PGIM Fixed Income / Former Deputy National Security Advisor and Deputy Director of National Economic Council)
https://www.rieti.go.jp/en/events/bbl/23112901.html

Our latest discussion papers

“How Oil Prices Impact the Taiwanese Economy: Evidence from the stock market“
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24090003.html

“How Oil Prices Impact the Indonesian and South Korean Economies: Evidence from the stock market“
Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24090002.html

“Aging Farmers and the Role of Community in Adaptation to Extreme Temperature Effects on Crop Yields“
KO Yi-Chun (Asian Growth Research Institute) / UCHIDA Shinsuke (Nagoya City University) / HIBIKI Akira (Consulting Fellow, RIETI)
https://www.rieti.go.jp/en/publications/summary/24090001.html

[List of discussion papers]
https://www.rieti.go.jp/en/publications/act_dp.html
[List of upcoming and past symposiums]
https://www.rieti.go.jp/en/events/symposium.html
[List of upcoming and past BBL seminars]
https://www.rieti.go.jp/en/events/bbl/

* To subscribe, please go to SHANON's website.
Subscribe

Event Information

For a complete list of past and upcoming event information.

Symposiums

Workshops

BBL Seminars

Fellow titles and links in the text are as of the date of publication.

For questions or comments regarding RIETI Report, please contact the editor.

*If the "Send by mailer" button does not work, please copy the address into your email "send to" field and connect the prefix and the suffix of the address with an "@", sending it normally.

RIETI Report is published bi-weekly.