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A Putin adviser was quoted on the news wires, indicating that Russia could respond to any US-sponsored sanctions with actions of its own, which could include abandoning the dollar as a reserve currency and/or defaulting on loans to US banks. Although the adviser Sergei Glazyev views were said to be his own and not the government, the implicit threat is there. However, it is a hollow threat; a bluff, little more than bluster. Russia does not hold dollar in reserves out of some kind of ill-placed generosity to the US. It is not a favor to the US. It is forced upon Russia by circumstances, some of which reflect Russia's own self-interest. First, it gets dollars for most of its exports. Second, it adopted a currency regime in which the dollar plays an important role. The dollar is 55% of the basket (euro is the other 45%) by which it manages its currency. Third, Russia has the fourth largest currency reserves in the world (behind China, Japan and Saudi Arabia ) at the end of January, which excluding gold , stood near $486 bln. A little less than half the reserves were in dollars a year ago or roughly $225 bln. Given the relative size of alternative bond markets, a move of this amount out of the US Treasury market, where we assume most is invested in, might be marginally disruptive, but would be exceptionally disruptive to where ever it was going.In order to defend the rouble, reports suggest that it has sold dollars. There is some talk that it may have to sell euros to maintain its reserve allocation. This obviously not the same abandoning the dollar as a reserve asset. Indeed, Russia's own intervention underscores the important role of the dollar.
A Putin adviser was quoted on the news wires, indicating that Russia could respond to any US-sponsored sanctions with actions of its own, which could include abandoning the dollar as a reserve currency and/or defaulting on loans to US banks. Although the adviser Sergei Glazyev views were said to be his own and not the government, the implicit threat is there. However, it is a hollow threat; a bluff, little more than bluster. Russia does not hold dollar in reserves out of some kind of ill-placed generosity to the US. It is not a favor to the US. It is forced upon Russia by circumstances, some of which reflect Russia's own self-interest. First, it gets dollars for most of its exports. Second, it adopted a currency regime in which the dollar plays an important role. The dollar is 55% of the basket (euro is the other 45%) by which it manages its currency. Third, Russia has the fourth largest currency reserves in the world (behind China, Japan and Saudi Arabia ) at the end of January, which excluding gold , stood near $486 bln. A little less than half the reserves were in dollars a year ago or roughly $225 bln. Given the relative size of alternative bond markets, a move of this amount out of the US Treasury market, where we assume most is invested in, might be marginally disruptive, but would be exceptionally disruptive to where ever it was going.In order to defend the rouble, reports suggest that it has sold dollars. There is some talk that it may have to sell euros to maintain its reserve allocation. This obviously not the same abandoning the dollar as a reserve asset. Indeed, Russia's own intervention underscores the important role of the dollar.
by InformedTrades via InformedTrades
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