Russia central bank admits it's struggling to find foreign-currency options as sanctions spur 'structural transformation'

• Russia has struggled to find foreign-currency alternatives since Western nations imposed sanctions, said the central bank governor.
• "We need to look toward the future, but at the moment I am struggling to give specific suggestions," Elvira Nabiullina said on Monday.

Since Western nations imposed economic sanctions on Russia, it has struggled to find alternatives for its frozen foreign-currency reserves, according to Russian Central Bank Governor Elvira Nabiullina.

Russian officials estimate that sanctions have frozen about half of its $642 billion in reserves, leaving it with mostly China's yuan and gold.

"We need to look toward the future, but at the moment I am struggling to give specific suggestions," Nabiullina told a parliamentary committee in Moscow on Monday. "The list of the countries issuing liquid reserve currencies is limited and they are the ones that have taken hostile measures and limited our access."

Before invading Ukraine, 11% of Russia's holdings were dollars, as the bank had dramatically decreased its US exposure for years while adding the yuan and euro to its reserves, Bloomberg reported. Now, over a third of its reserves are in euros, with additional investments in the pound and yen.

But all of the above have been frozen by foreign countries amid the war, which forced Russia's central bank to take drastic measures. It has had to resort to steep interest rate hikes and stringent capital controls, such as limits on how much foreign currency Russians could transfer.

The central bank has since eased interest rates a bit, and Nabiullina said Monday a further rate cut is possible as well as a loosening of requirements for exporters to sell foreign-currency proceeds, according to Reuters.

The central bank is also planning legal retaliations against countries that blocked Russian assets, but any action "must be very carefully thought through…so that we might get the desired result," she added.

Meanwhile, Nabiullina said it would take two years to pull inflation back to its 4% target and warned that the effects of sanctions are moving from financial markets to the real economy.

Russian industry will have to find new international partners to adapt to the sanctions, spurring long-term changes in the economy, she said.

"The period when the economy can live on reserves is finite," Nabiullina said. "And already in the second and third quarter we will enter a period of structural transformation and the search for new business models."