Wednesday, June 10, 2009

Well, at least from Russia, which publicly can’t seem to stop itself from smacking down the dollar at every opportunity

From Alphaville:

Another illogical Russian smackdown for US treasuries

Next week, Russia hosts a meeting between the leaders of Brazil, India and China in the Russian city of Yekaterinburg, at which it is widely expected the dollar’s dominant role will be hotly contested. The world should therefore be standing by for many a dollar-critical comment in the lead-up to the meeting from some of the aforementioned parties.

Well, at least from Russia, which publicly can’t seem to stop itself from smacking down the dollar at every opportunity. As Bloomberg reports on Wednesday:

June 10 (Bloomberg) — Russia’s central bank may switch some of its reserves from U.S. Treasuries to International Monetary Fund bonds, the bank’s first deputy chairman, Alexei Ulyukayev, said in Moscow today. His comments were confirmed by a bank official who declined to be named, citing bank policy. Finance Minister Alexei Kudrin said last month that Russia planned to buy $10 billion of IMF bonds using money from its foreign reserves.

IMF bonds are of course still in the making, but they are definitely on their way as this WSJ story explains. As the story also points out it was always well expected that Russia would be snapping up a fair share of these special-drawing-right priced securities. The news today is that their $10bn expected purchase might, however, come at the expense of Russia’s own US Treasury holdings.

That’s all very well Russia, but surely you’ve considered the fact that talking down the dollar publicly doesn’t serve your best interests until you actually have adequately diversified? It’s certainly a questionable communications strategy, at the very least.

In fact, we wonder if the other dollar-holding BRIC countries would rather if Russia just zip it completely for the time being.

As Simon Derrick at BNY Mellon points out on Wednesday, China is clearly employing a more tactical approach as a form of damage control to compensate for Russia’s loose mouth: It must noted, however, that there also appears to have been a persistently anti-USD sentiment behind many of Russia’s statements. Whilst it is certainly understandable why Russia might take this approach, this has also served to undermine the value of the USD reserves of both itself and others. Indeed, it is easy to see the comments from China’s Vice Foreign Minister He Yafei that “nobody is talking about dumping the USD” as a fairly direct attempt to offset the impact of recent Russian statements. The essence of which is China saying to Russia: “Please, just stop talking !” “No-one would notice us dumping our dollars if you’d just shut up.”

As Derrick goes on:
As we have highlighted elsewhere, we believe that China has decided that it is self-defeating for them to make comments that serve to undermine the value of the USD (we note the recent comments stressing the “partnership” they are in with the US). Following on from this, we suspect that they may also make this argument to their Russian opposite numbers next week. As a result, we would not be surprised to see a shift in tone from Russia in its comments on the USD following the summit next week.

So there you have it. If Russia suddenly quietens down on the dollar bashing, don’t necessarily take that as a reversal of its anti-dollar policy. China’s strategy, meanwhile, is clearly to keep the world guessing; being fully supportive on face value,while snickering at the dollar in the background.

Related links:
China’s fake recovery redux, or who’s laughing now?
- FT Alphaville
Quote du jour, Chinese snickers -
FT Alphaville
China to US: We hate you
- FT Alphaville
Quote du jour, China’s fake recovery edition
- FT Alphaville
China’s fake recovery
- FT Alphaville
A commodity anchor, or oil as money - FT Alphaville


Don the libertarian Democrat Jun 10 20:35
I'll answer to Kamilla if that makes everyone happy. The story was pure hype. All it really said was that, having purchased a bunch of US Bonds during the Flight To Safety, when these bonds mature, Russia considering buying riskier, higher yielding assets. They've also pledged to but some IMF Bonds, should they show up. This is not portentous of anything. Does anyone believe, or even want, the Flight To Safety to continue on indefinitely?

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