Thursday, January 21, 2010

Russia to diversify into CAD

The Central Bank of the Russian Federation is going to invest a part of the funds of Russia’s international reserves into investments denominated in the Canadian dollar. This is a further attempt to diversify their reserves. Of course, this is not true diversification. The Canadian economy is commodity based like Russia. No gain there. Canada in many respects is part of the North American currency zone and will always trade closely with the US. The US is its largest trading partner and most of the population moves freeing in and out of the Us and live within 100 miles of the border. Most of its exports are to the US.

This is more of a statement on the negative prospects of the dollar than a comment on the gains from Canada. Nevertheless, Canada has a much better fiscal position than the US and may be able to better control government expenses and inflation in the coming years. One more headwind against the dollar even though Russia has not started to trade in CAD.

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