> > MOSCOW (AP) - Russia may have to spend an extra dlrs 400
> > million this year to pay off its debts to European
> > countries because of the dollar's slide against the euro,
> > the Russian finance minister said Tuesday.
> > Russia's hard currency reserves are held in U.S. dollars,
> > but the bulk of its huge foreign debt is owed to European
> > creditors and is now denominated in euros.
>
> I don't get this. The whole point of having foreign currency reserves is to
> be able to pay off your debts that are denominated in other currencies. If
> Russia's debts are denominated in euros, why do they hold dollars???
>
> Seth
>
Foreign currency reserves can be used to pay for foreign goods purchases, to service debt and as a source of emergency liquidity (in this case, dollars to help service Euro denominated debt because of the dollar's decline). Most central banks hold more dollars in foreign currency reserves than any other currency for liquidity purposes. Until April, that was a good bet - the central banks also count amongst the world's largest currency speculators.
Nomi
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