Reference no: EM133269995

Assignment:

Read the quotes from to the article:

"At the heart of the move to restrict the Bank of Russia are its foreign exchange reserves. These are the vast haul of convertible assets - other nations' currencies and gold - that Russia has built up, financed in large part through the money it earns selling oil and gas to Europe and other energy importers."

"As Mr. Bernstam explained, the Bank of Russia has roughly $640 billion in foreign exchange reserves on paper - or rather as electronic entries. But a big chunk of that money is not in Russian vaults or financial institutions. Rather, it is held by central and commercial banks in New York, London, Berlin, Paris, Tokyo and elsewhere around the world."

"Yet the central bank has just about $12 billion of cash in hand - an astonishingly small amount, he said. As for the rest of Russia's foreign exchange reserves, roughly $400 billion is invested in assets held outside the country. Another $84 billion is invested in Chinese bonds, and $139 billion is in gold."

Question: Why the central bank of Russia has held currencies of other countries (foreign exchanges) and gold, instead of rubles, their own currency? Justify your answer by providing principles, theories and concepts from our lecture slides and the textbook.