"From Russia, with higher interest rates
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- The Economist l LONDON
FELIX SALMON alerts us to Russia's statement that it will sell some American Treasuries to finance its purchase of the soon-to-be-issued IMF bonds. He discounts the possiblity that actions like this could affect the T-bill market because he believes any IMF bonds will likely be denominated in dollars and because potential Russian purchases will probably be little more than a drop in the bucket.
But this is not the conclusion of Brookings's Eswar Prasad, who has argued that IMF bonds will quite likely be denominated in SDRs, thus allowing for some currency diversification, but also that even if the likely scale of countries' IMF bond purchases aren't enough to rock the T-bill market, they could affect American interest rates if markets react adversely to countries having a new alternative to Treasuries. (He does point out, though, that any shift out of Treasuries into IMF bonds would be tempered by the IMF having to hold some Treasuries to mimic the composition of the SDR basket, so the direct effect on the T-bill market would be even smaller than the sum of countries' IMF bond purchases woukd suggest.)
But as Mr Salmon notes, if there is in fact a causal route between purchases of IMF bonds and higher interest rates, then the real noise won't be made when Russia sells Treasuries but when the large Asian economies get into the game."Me: