Wednesday, June 10, 2009

Russia May Swap Some U.S. Treasuries for IMF Debt

Russia may switch some of its reserves from U.S. Treasuries to International Monetary Fund bonds, the central bank said today, according to Bloomberg.

Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said some reserves may be moved from Treasuries into IMF debt, reiterating comments made last month by Finance Minister Alexei Kudrin. Ulyukayev’s remarks were confirmed by a Bank Rossii official who declined to be named, citing bank policy.

About 30 percent of Russia’s international reserves, which stood at $401.1 billion on May 29, are currently held in Treasuries, Ulyukayev said. Kudrin said on May 26 that Russia planned to buy $10 billion of IMF bonds using money from its foreign reserves. It's another first step by a major foreigner player. China has also said it is going to buy some IMF bonds.

Clearly, the U.S. Treasury bond is on the brink of collapse. It can dangle for awhile, but when the big drop comes, it is going to hurt. Double digit rates, easy.

I'm thinking the Treasury knows the dollar and Treasury securities won't survive as desired international financial instruments, and is behind the scenes positioning the IMF and it's SDR to take the place of the dollar. In this way, the U.S will attempt some kind of influence versus a move by central bankers to adopt some other currency, such as China's yuan. My bet is the U.S. government sees the SDR as the least bad option.

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