Does only volume matter? : a stress test for the adequacy of international currency reserves for Russia

This paper seeks to determine the optimal volume of international currency reserves of the Bank of Russia to prevent adverse fluctuations of the Russian ruble exchange rate, causing a threat to financial stability. We create a system of models, taking into account the linkages between the dynamics of exchange rate and the behavior of economic agents - households, non-financial industries, and banks. Our empirical exercise allows to conclude that, with the occurrence of the most severe stress and the immediate provisions of currency liquidity by the Bank of Russia, the current volume of international reserves will be sufficient to eliminate its consequences. However, in case of retarded provisions of currency liquidity, the volume of highly liquid reserves will not be sufficient, forcing the Bank of Russia to sell a significant volume of foreign government securities. In this light, the Bank of Russia should change the structure of the international reserves in favor of highly liquid assets by reducing the share of securities and increasing the share of short-term deposits in foreign banks with high credit ratings. As for the volume of international reserves for Russia, including less liquid components, it is sufficient to surpass the maximum possible stress in the foreign exchange market and to subsequently keep the Russian economy sustainable.